We saw two very controversial companies announce earnings after the market closed on Wednesday, which then led to massive gains. In this piece, I am looking at these two companies to assess the quarter, valuation, and to determine if any are a “buy.”
Solid Growth, Partnership, & Fair Value Lead to Large Gains
From gains of 10% during Wednesday’s after-hours session, to gains of 20% midday on Thursday, to finally breaking above 27%, shares of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) exploded after reporting earnings. The company posted revenue of $1.00 billion for a 14% year-over-year (yoy) gain and then beat bottom line expectations by $0.20 with an EPS of $0.93. In the quarter, sales of single serve packs increased 21%, volume increased 26%, and margins rose 290 basis points due to lower green coffee costs. On a side note, the company announced a five-year deal with Starbucks Corporation (NASDAQ:SBUX) to triple the number of products offered in the single serve market.
As I look at the company’s quarter, I really can’t find any negatives, and believe me, I looked hard. The company has lower costs, double digit revenue growth, and is expecting 14% bottom line growth this year. However, I think it’ll grow faster with the new partnership with Starbucks Corporation (NASDAQ:SBUX). The reason being some people complain that there aren’t enough flavor choices with k-cups (my wife included) that are carried in store, and with a broader selection I think we’ll see a boost in sales along with more investment interest due to the partnership.
The Next Great Speculative Investment?
After a month of speculation, Tesla Motors Inc (NASDAQ:TSLA) blew through earnings expectations and traded higher by a mind-boggling 25%. The company grew 16% yoy with revenue of $562 million ($63 million better than the consensus) and an EPS of $0.12 ($0.08 better than expectations). The large beat was thanks to the company outperforming production guidance of the Model S, which then helped gross margins to double to 17%. Tesla now believes it will exceed its guidance of 20,000 vehicles delivered in 2013, which could be in part due to the Model S receiving the first 99 out of 100 score from Consumer Reports since 2007.
At first I was very skeptical of Tesla Motors Inc (NASDAQ:TSLA), believing the stock had gotten ahead of itself and that it was too expensive; trading at just one-fifth the valuation of General Motors Company (NYSE:GM) but only a fraction the size. However, Tesla is not only an automotive company but also a technology company, and has created something remarkable. The company does have the Model S but also a Model X in the pipeline and because of the performance I think Tesla Motors Inc (NASDAQ:TSLA) is a great long-term investment.
With that said, I expect countless speed bumps along the way. The four to 40 hours it takes to fully charge a vehicle (depending on charger) is inconvenient and there are only a handful of charging stations (mostly located in California), meaning that Tesla’s growth will take time. However, with its technology I do think Tesla Motors Inc (NASDAQ:TSLA) could become a great mega cap company in the decade ahead.
Conclusion
“With controversy, there’s usually a great plan with great vision. The question is what controversy creates: Sometimes it’s beyond success and other times it’s bankruptcy. If investing in the early stages you are accepting a great deal of risk, but if you wait a little longer and allow the company to develop, a higher premium may be paid, but the controversy will fade as the vision and plan become transparent.” Taking Charge With Value Investing (McGraw-Hill, 2013)
With Tesla Motors Inc (NASDAQ:TSLA) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) you can really see two different companies at opposite ends of the spectrum. Green Mountain was once a highly controversial stock with explosive growth whose stock grew beyond fundamentals. It then fell and has since begun to appreciate as doubters are proved wrong. Tesla may very well experience a similar fate: It may be the best performing stock for the next three years as excitement builds and speculation runs wild, but then suddenly fall. Just remember, like all speculative companies, there will be ups and downs, but if the business model is sustained then large long-term gains can be created.
The article 2 Controversial High-Flyers Worth Exploring After Earnings originally appeared on Fool.com and is written by Brian Nichols.
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