NEW YORK (TheStreet) -- Coca-Cola (KO) is taking a bigger swallow of Keurig Green Mountain Coffee Roasters (GMCR). And the StockTwits community is questioning whether Coca-Cola is sipping the product before eventually gulping the whole thing down.
$GMCR Now everyone is worried about the buyout, but make sure you sell the weeklies and capture the volatility!? InvestingJungle (@InvestingJungle) May. 13 at 09:39 AM
In an SEC filing today, Keurig-maker Green Mountain disclosed that Coca-Cola increased its stake in the company to 16%. In February, Coca-Cola took a 10% stake in Green Mountain for $1.25 billion. The companies also announced that they had signed a 10-year agreement to develop a cold Keurig machine that would enable customers to make carbonated drinks at home.
Shares of Green Mountain had gained 11.3% to $123 by 11 a.m., and Coca-Cola edged 0.83% higher to $41.15.
Coke could certainly afford to buy the Keurig maker. Green Mountain has a market cap of $19.35 billion. Coca-Cola had $16 billion in cash and equivalents in the first quarter and has a market cap of $180.6 billion.
Green Mountain's financials show enticing growth. Last week, Green Mountain reported double-digit sales and earnings growth of 10% and 16%, respectively, for the fiscal second quarter. It reported net sales of $1.1 billion and $260 million in operating income. Keurig accounted for more than half of that income, bringing in $162 million.
Coca-Cola clearly sees an opportunity in the business. When Coca-Cola first disclosed its Green Mountain stake, CEO Muhtar Kent called the at-home cold brewing market one of the "consumer trends driving the industry." He added that "Together we will be able to capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry."
Coca-Cola could, conceivably, want to try to corner that trend by owning Green Mountain -- thereby ensuring its beverages, not rival Pepsi's (PEP), dominated the cold-brewed and Keurig offerings -- though its stake may already give it that ability.
Coca-Cola may want to continue to sip on the sidelines with a minority stake in Green Mountain. One of the drivers of at-home cold beverage brewing is the ability to make favorite carbonated drinks without added sugar, chemicals or earth-unfriendly packaging, as well as to save money at the grocery store. But, should the health craze prove short-lived, some consumers may choose to go back to buying packs of soda bottles.
If Coke isn't a buyer, it's not clear that the stock is worth its near-30 times price-to-2015-earnings ratio. The company missed analyst estimates on revenue last quarter, though it beat on earnings. The consensus price target on the stock is $103.09, according to the Analyst Ratings Network. It trades well above that at $123.
But investors on StockTwits see more reasons to bet on Green Mountain than not. Sentiment on the company is 70% bullish, according to StockTwits analytics.
$GMCR 124.42 now seems just around the corner? InvestingJungle (@InvestingJungle) May. 13 at 10:06 AM
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.