Green Mountain Coffee Roasters Inc. (GMCR), Starbucks Corporation (SBUX): Better Ratios Don’t Always Make for Better Investments

New frontiers

Starbucks is also taking note of steady consumer trends while rapidly expanding to more markets in attempts to benefit. Starbucks recently bought Teavana, a chain of high-end tea bars. Hot tea is growing in popularity, and many drinkers are switching to tea from coffee in order to reap expected health benefits. And while Starbucks offers Tazo brand tea in its shops, hot tea accounts for less than 2% of their coffee shop sales. Teavana gives Starbucks the advantage of owning shops that attract and cater to a different, but substantial, market of tea drinkers.

But it doesn’t come cheap- Starbucks bought Teavana for $600 million. And while it seems like a hefty investment, it’s also a fantastic hedge if coffee becomes second to tea in popularity (improbable but possible!). In addition, Starbucks went through with the acquisition of Evolution Fresh, a juice chain that appeals to healthy minded consumers. Starbucks is betting big on the new trend towards “healthy,” and I personally believe it’s a smart move.

Good management trumps financial ratios

Starbucks still holds $1.2 billion in cash, and just increased their dividend in November, but even these numbers aren’t the driving factor for me choosing Starbucks. The company has a P/E of 33, slightly higher than Green Mountain Coffee Roasters, but ends absolutely justify the means.

While both companies are very good, Starbucks looks to be the better long-term opportunity due to its unique business model and constant practice of trying new things. Starbucks is taking a proactive approach to become even better, which bests any other company that just settles for doing good.

The article Better Ratios Don’t Always Make for Better Investments originally appeared on Fool.com and is written by Ryan Gilbert.

Ryan Gilbert has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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