Can Keurig Green Mountain (GMCR) Stock Grind Out a Bottom?

Don't overstay your welcome on the short side.
By Bruce Kamich ,

NEW YORK (TheStreet) -- With Keurig Green Mountain (GMCR) scheduled to report earnings after the bell today, I thought it would be a good time to re-examine the technical condition of this company.

The price of GMCR has been under pressure for 12 months now with prices tumbling to $40 from $157. No, not a typo, see chart above. Prices tried to halt their decline several times, but each level failed to hold.

Notice how the On-Balance-Volume (OBV) has been in a decline and the slope of the 50-day moving average has been negative for months. A subtle difference is showing up on this chart recently -- prices made a new low this month, but the OBV line has not broken below the low made at the last price low in August. The other subtle difference is the bullish divergence between the lower lows in price in August and November and the higher lows made on the momentum study. A rising OBV line, or a rally above the 50-day average, would help the picture a lot more.

This chart, above, shows the persistent decline in GMCR. The only potential bright spot here is the extreme oversold readings from the Slow Stochastic indicator in the lower panel. An oversold market doesn't necessarily warrant an upside reversal but it does tell you not to overstay your welcome on the short side.

TheStreet Ratings team rates KEURIG GREEN MOUNTAIN INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate KEURIG GREEN MOUNTAIN INC (GMCR) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GMCR's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.04, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Food Products industry and the overall market, KEURIG GREEN MOUNTAIN INC's return on equity exceeds that of both the industry average and the S&P 500.
  • 42.75% is the gross profit margin for KEURIG GREEN MOUNTAIN INC which we consider to be strong. Regardless of GMCR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.71% trails the industry average.
  • Looking at the price performance of GMCR's shares over the past 12 months, there is not much good news to report: the stock is down 70.27%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Food Products industry average. The net income has significantly decreased by 26.8% when compared to the same quarter one year ago, falling from $155.15 million to $113.62 million.
  • You can view the full analysis from the report here: GMCR

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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