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Keurig Green Mountain Is Oversold, Nearing Support: A Technical Breakdown

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Keurig Green Mountain Is Oversold, Nearing Support: A Technical Breakdown
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Keurig Green Mountain Inc (NASDAQ: GMCR) has had a tough go of it recently as the shares have fallen down to $113.20, from $158.87 in November 2104. 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 Keurig's profile and chart to get an idea of what the future may hold for shareholders.

What The Bulls See

  • Net profit margins of 12.59 percent that spin off positive levered free cash flow of $259 million annually
  • Good return on assets and equity of 13.96 percent and 19.51 percent, respectively.
  • A clean balance sheet: Cash of $606 million versus total debt of $277 million, a debt-to-equity ratio of only 7.98 percent and a current ratio of 2.77.
  • A reasonable price-to-sales ratio of 3.90.
  • A dividend of 1.2 percent annually to sweeten the overall "return on investment" picture for shareholders.

What The Bears See

Some rich valuation metrics:

  • A market capitalization of $18.3 million that exceeds the company's estimated enterprise value of $17.97 billion.
  • A price-to-book ratio of 5.32.
  • 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 percent and 15.7 percent, respectively.

The Technical Take

Technicians note that Keurig 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 5.

Resistance is starting to pile up for Keurig. 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.

Stock chart: 
Stock chart

Posted-In: Keurig Green MountainLong Ideas Technicals Movers Trading Ideas Best of Benzinga

 

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