KEURIG GREEN MOUNTAIN IS OVERSOLD AND NEARING SUPPORT – IS IT A BUY?

Keurig Green Mountain, Inc.

has had a tough go of it recently as the shares have fallen down to $113.20 from $158.87 in November. Does the company have the fundamental "goods" required to stabilize the shares and start a new uptrend? With technical support nearby, at least the answer to that question may be provided by the markets sooner than later. Let's take a look at GMCR's profile and chart to get an idea of what the future may hold for shareholders. What the bulls see in Keurig Green Mountain… • Net profit margins of 12.59% that spin off positive levered free cash flow of $259 million annually • Good return on assets and equity of 13.96% and 19.51% respectively • A clean balance sheet: o Cash of $606 million versus total debt of $277 million o A debt-to-equity ratio of only 7.98% o A current ratio of 2.77 • A reasonable price-to-sales ratio of only 3.90 • A dividend of 1.2% annually to sweeten the overall "return on investment" picture for shareholders What the bears see in Keurig Green Mountain… • Some rich valuation metrics: o A market capitalization of $18.3 million that exceeds the company's estimated enterprise value of $17.97 billion o A price-to-book ratio of 5.32 o A P/E ratio of just under 25 based on next year's consensus estimates that seems a bit pricey compared to the company's estimated revenue and EPS growth rates of 15.6% and 15.7% respectively The technical take on GMCR shares… Technicians note that GMCR shares are oversold and trading very close to important horizontal line support at $112.48. Any break and close below that level would likely lead to a test of the long-term uptrend line at around $109 – which actually corresponds with the intraday low from February 5th. Resistance is starting to pile up for GMCR. The first level comes in at $119.94 and is backed up by $126.48 – both of which are horizontal lines of resistance. Overall… Adventurous longs will be taking and building positions near the $112.48 support level while those demanding a more desirable entry will likely wait until the $109 - $110 range is tested. The shorts have had their way for a while now but could be setting up for a shock if the company is able to hold support either at $112.48 or $109. Prudence dictates that the bears have one foot out the door at this point.