ATML Earnings Action

In a tumultuous marketplace where equity destruction has been commonplace and long-only investors have gotten crushed, the performance of Green Mountain Coffee Roasters Inc. (GMCR) has been a real outlier thanks to growing sales of K-Cup coffee portion packs for its Keurig Single-Cup brewers that are popular in homes, offices and hotels. Second quarter results released on Tuesday were a testament to why it bucked the trend; net income rose 118% to $12.98 million or $.50 a share, topping analyst estimates on the back of shipped K-Cup portion packs of 432 million (up 62% yoy) supported by an increase of 479,000 shipped Keurig brewers (up 148% yoy). Add that to a positive news mix of a new full year EPS guidance range of $1.47 to $1.53, up significantly from previous estimates of $1.25 to $1.35 a share and a highly anticipated distribution deal with Wal-Mart, and the result was a new 52-week high of $79.13. But from a trading perspective, the specialty coffee company's stock price is looking frothy and the momentum is due to cool off for a couple reasons. Its rich valuation has soared to 48x earnings as the market has priced in accelerating growth. This should become a fundamental deterrent in attracting a new round of buyers with enough of an insatiable appetite to sustain a lofty share price as profit takers abound. And secondly, the intensity of short covering should decrease. The latest NASDAQ market data shows a short interest number that has ratcheted lower from a high of 10.6 million (more than 50% of the public float) in mid-March to 8.8 million shares as of mid-April and again should decrease substantially when the next short interest report is released following this past week’s post-earnings margin calls and forced short seller covering.