Green Mountain Coffee Gets No Respect

Green Mountain Coffee Roasters (NASDAQ: GMCR  ) is the Rodney Dangerfield of coffee stocks.

Just as Dangerfield crafted an ironically lucrative career telling people that he doesn't get any respect, the company behind the Keurig single-cup brewing system is still getting dissed even though the shares have more than tripled since bottoming out this past summer.

The latest slam came over the weekend as Barron's Andrew Bary suggested that Warren Buffett may want to consider snapping up Bed Bath & Beyond (NASDAQ: BBBY  ) . In dismissing the recent same-store sales weakness at the home-goods retailer -- up just 1.7% in its fiscal quarter ending in November and pegged to grow between 2% and 4% in the quarter that just ended last month -- Bary argues that the K-Cup company may be to blame.

One reason for weaker sales could be flagging interest in Keurig coffee makers made by Green Mountain Coffee Roasters. Bed Bath is a major seller of them.

Are you getting that? There's flagging interest in Keurig brewers, and that's why Bed Bath & Beyond is doing so poorly.

Well, let's fact-check that salvo.

Back to School�
Bed Bath & Beyond net sales in its November quarter were crummy. Net sales did climb 15%, but 79% of that growth was tied to the June acquisitions of Linen Holdings and Cost Plus. Back out those purchases and organic growth at the namesake chain rose a mere 3% as a result of meager expansion and the 1.7% increase in comps.

By that math, Green Mountain must be doing lousy if "flagging interest" is dragging down Bed Bath & Beyond's performance.

It's not, but don't take my word for it.

Bed Bath & Beyond and Green Mountain don't have the same fiscal calendar, but we do know that net sales rose 16% during the holiday quarter ending in December and that Green Mountain's target net sales growth of 15% to 20% for the entire fiscal year that ends in September. Nothing there seems to match the 3% organic growth at Bed Bath & Beyond during the November quarter of what will likely be net sales growth of less than 5% during the quarter that just ended.

One can argue that Bary did specify brewers -- not the popular K-Cup refills -- but that doesn't hold up, either. Green Mountain sold a record 4.95 million Keurig brewers during the holiday quarter, 18% more than it did a year earlier.

Easy Money
Green Mountain investors should be used to this by now. Despite its stellar growth and even its recent buoyant appreciation, the company that owns the single-serve brewing market is often talked down in its own niche.

Remember when the introduction of Starbucks' (NASDAQ: SBUX  ) Verismo was supposed to cool Keurig's popularity? Well, the Verismo rollout last year didn't dissuade Green Mountain from sticking to its 15% to 20% net sales growth trajectory. Brewer sales were up 14% and K-Cup sales were up 21% in Green Mountain's latest quarter.

This isn't a knock on Bed Bath & Beyond or Starbucks. The home-furnishings superstore chain may very well look smashing on Buffett's arm. Starbucks is the darling of the java world for compelling reasons. However, even though Green Mountain has seen its stock more than triple since July, it trades at just 19 times this year's projected earnings. Starbucks -- a great company but one that is growing quite a bit slower -- is priced at 27 times the same fiscal year's bottom-line target.

I get it. Starbucks has the killer brand. Right. The baron of baristas is worthy of a healthy market premium. Sure. Why is Green Mountain still a pundit punch line after proving that it could overcome last year's K-Cup patent expiration and still deliver strong double-digit growth?

Meet Wally Sparks
If you're going to be slammed by consumers, partners, or financial journalists, let it be the folks with the venomous pens. They're the only ones who won't get in the way of a company's actual growth.

The public is still gravitating to single-serve java. Even after the K-Cup patent expiration, food giants -- Starbucks included -- continue to strike deals with Green Mountain. Last week, it was Unilever (NYSE: UL  ) moving to get its Lipton tea brand into hot and iced Green Mountain portion packs.

Some skeptics played down the importance of the Lipton deal in light of the small rally that followed, but it's really not about the number of Lipton servings that will sell on Keurig. It's really about respect. It's about the respect that comes from a food giant that could have easily put out its own K-Cups since last September's patent expiration, but chose to play along because it respects the distribution reach of Green Mountain and also wants to make sure that it's on the right side of the patent-protected Keurig Vue platform that was introduced last year.

Consumers, partners, and investors respect Green Mountain. When will the pundits come around? The shtick is getting old.

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Natural Born Killers
With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.