While Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR, Stock Forum) was already on many traders' watch lists earlier this year, the company quickly vaulted into the limelight following its quarterly earnings report on April 29. For the record, GMCR reported that second-quarter net income rose 118% percent to $12.98 million, or 50 cents per share, from $5.96 million, or 23 cents per share, in the year-ago quarter. The company also raised its fiscal 2009 adjusted profit view to $1.47 per share to $1.53 per share, on net sales growth of 58% to 61%.
And, if that wasn't enough good news for the firm, GMCR announced that it has entered into a distribution partnership with Wal-Mart Stores Inc. (NYSE: WMT, Stock Forum). The world's largest retailer will now begin distributing Green Mountain's Keurig coffee brewers in more than 3,000 of its stores.
As a result, the equity soared more than 37%, and is now sitting on a year-to-date gain of more than 90%. By comparison, the S&P 500 Index (SPX) has cobbled together a mere 0.44% return for the same time frame. What's more, GMCR has outperformed the broad-market indicator by nearly 70% during the past 60 trading days on a relative strength basis.
Technically speaking, GMCR is now trading in all-time high territory, as it consolidates its recent gains. The shares have easily outstripped rising support at their 10-day and 20-day moving averages - trendlines which had helped usher the equity steadily higher since mid-March. Potential round-number support lies just below the security in the 70 region, with the shares rebounding from this level in Monday's trading. On the other hand, as the security digests its recent spike higher, bullish investors should keep a wary eye on the 75 area. This region could provide a short-term technical hurdle for GMCR.
On the sentiment front, it seems that GMCR's sudden explosion has caught many bearish investors flat-footed. Options players were particularly unprepared for a sharp rally in the equity, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.24 indicates that puts more than double calls among options with less than three months until expiration. This ratio also ranks higher than 96% of all those taken during the past year, meaning that options traders have been more bearishly aligned only 4% of the time in the prior 52 weeks. An unwinding of this pessimism could send GMCR steadily higher.
Elsewhere, data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) also points toward a heavily bearish slant from the options crowd. Currently, the ISE/CBOE 10-day put/call ratio of 1.93 indicates that puts bought to open on these exchanges nearly double calls purchased during the prior two weeks.
Digging into GMCR's open interest configuration underscores this negativity. Peak put open interest of 4,701 contracts resides at the out-of-the-money May 65 strike. The next most popular put is even deeper out of the money, with 3,217 contracts resting at the May 45 strike. By comparison, peak call open interest for the May series resides at the deep in-the-money 55 strike, totaling 2,859 contracts. Another 2,663 calls are open at the in-the-money May 60 strike. This skew toward deep in-the-money calls, and out-of-the-money puts indicates that investors are not looking for GMCR to rise much higher.
The situation is just as bearish outside of the options pits. Among Wall Street analysts, GMCR has garnered only two "buys," compared to two "holds," and one "strong sell," according to Zacks. Meanwhile, Thomson Reuters reports that the average 12-month price target for GMCR rests at $67 per share - a nearly 10% discount to the stock's Monday close at $73.65 per share. Any upgrades or upward price-target revisions could provide additional support for the security's rally.
Finally, short sellers find themselves in the midst of a short-squeeze situation. Despite a 9.3% decline in the number of GMCR shares sold short during the most recent reporting period, more than 45% of the stock's float remains sold short. As the equity extends its post-earnings rally, more and more of these short sellers could be forced to buy back their bearish bets, thus providing additional buying pressure that should help extend GMCR's rally over the intermediate term.
By Joseph Hargett
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