Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) is one of the hotter stocks in the market right now. In fact, the stock is up 178% since the start of the year.
But if you know what's good for you, you'll steer clear. Green Mountain has shot up so high, so quickly that it has become a victim of its own success.
Let me explain.
Green Mountain started with a single café that roasted beans and sold coffee over the counter to customers in a small town in Vermont. Today, that same company is generating $2.3 billion of revenue.
To put that in perspective, Green Mountain has delivered double-digit net sales growth for the last 27 consecutive quarters. And, since the acquisition of Keurig, it has seen net sales growth of more than 39% for 12 consecutive quarters.
But while compounded growth is the key to long-term success, it also can become a drag on near-term profits.
Often a company feels it must continue to grow simply for growth's sake. And if that's the route Green Mountain takes, then it will find itself in the exact same place Starbucks Corp. (Nasdaq: SBUX) did a couple of years ago.
Indeed, Green Mountain has put so much emphasis on growth that high expectations could negatively impact the company's execution.
And in the economic reality of today, a company that has fixated on hitting lofty growth objectives could be setting itself up for a serious market disappointment.
So Green Mountain Coffee Roasters is "hold" - at least until global growth starts to rebound (**).