Company hiring practices lend valuable insight

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Today I’m following up on yesterday’s SmallCapInvestor Daily newsletter Hiring is Healthy, and taking a closer look at a small-cap company that is adding jobs even in a rough economy. 

Investors can use hiring information to help determine if the company is growing in a direction that supports an investment in shares of the company’s stock.

As I wrote yesterday, “…looking into a company’s hiring practices is just one more tool in the toolbox that can be used to assess the attractiveness of a company before investing.  I like it because it gives me a real look into the company, one that many people don’t see unless they are actually applying for a job.”

I like to see companies that are hiring in areas such as manufacturing, research and development, and finance because hiring in these areas shows me that the company plans on growing for the longer-term.  It typically takes longer to get these positions filled, to train the employees, and to integrate them into company specific processes. But the rewards of hiring and training quality people will pay dividends over the long haul.

Other areas, like customer service and shipping and receiving may indicate that the company is increasing the number of employees to handle greater customer traffic and product volume.  This is great, but could point to a seasonal trend – especially during the holiday shopping season.  Of course, a company’s particular business model should dictate where we want to see hiring.  It’s best to see hiring in areas that are core to that organization’s growth strategy.     

Today we’ll take a look at a local and highly successful company here in Vermont. You’re probably familiar with Green Mountain Coffee Roasters (Nasdaq: GMCR), a specialty coffee roaster and distributor, that I’ve discussed in the SmallCapInvestor Daily newsletter in the past. 

In addition to a very successful coffee bean business, Green Mountain is the owner of the Keurig single-cup brewer and the K-cup single portion packs.  Within this business, I’m hoping the company is filling positions that will expand its footprint beyond the northeast, and increase sales volume throughout North America.  Greater distribution is central to Green Mountains’ growth strategy, since it operates in the wholesale, retail, and direct to consumer sales channels. Greater distribution will increase revenues and help the company fuel long-term growth.

This is also an interesting company to profile because this year Green Mountain acquired Timothy’s Coffee of the World for $157 million, and today announced it will acquire Deidrich Coffee (Nasdaq: DDRX) for $290 million, or $35 per share.  This latest acquisition comes at the tail end of a bidding war for Deidrich’s with Peet’s Coffee (Nasdaq: PEET) which was vying for a position in the single-serve market with its proposal to acquire Deidrich.   

Green Mountain Hiring     

Green Mountain is currently hiring for 58 positions, in virtually all departments.  This is 4.1% of the existing number of employees – according to the company’s website it currently employs 1,500 people. 

Most of the positions are full time, and are located around the country at the company’s various sites.  As I was hoping to see, production and distribution positions are in need of being filled, as are a number of operations and supply chain positions.  Given that Green Mountain has shipped 1.6 billion K-Cup portion packs over the year (an increase of 63% over last year), plus substantial volumes of their bagged coffee, greater need for manpower to handle distribution and management should come as no surprise.  By hiring operations and supply chain personnel, Green Mountain is clearly increasing distribution volume throughout the country – a critical component of the company’s growth strategy and a good sign for investors.   

Green Mountain is also hiring a number of sales people, regional managers, and marketing staff.  This shows that the company requires additional resources to organize and integrate the various sales efforts throughout the country – another good sign especially given that Green Mountain’s future is largely dependent upon increasing sales volume in markets outside of its historical northeast focus.

Finally, the company is filling a number of information technology, software engineering, and finance positions.  This is another plus, since it shows that the sales and distribution volume is translating into extra dollars that can be spent on strengthening the company’s internal management processes.  With increasingly complex distribution networks and geographically spread out manufacturing plants, the company’s various locations need to be integrated – or the higher sales volume won’t translate into greater profits.

The fact that positions are being filled at company headquarters in Waterbury, Vermont, Knoxville, Tennessee, and other satellite locations tells me that the company is indeed focused on integration. 

With all the hiring efforts signaling a focus on integrating wider distribution of its products, I expect Green Mountain will continue to grow.  Investors should watch the company’s operating and profit margins closely however, to see if the rapid growth actually does translates into greater profits. 

Right now shares of Green Mountain Coffee Roasters stock are trading at 45-times trailing earnings.  This is still quite a premium despite a pullback in share price from a recent high of $77 to $60 where shares trade today.  But investors have been willing to pay a premium for this stock for years now, and it continues to perform.  The recent news that it will acquire Deidrich’s seems to be helping shares too, at least in the short-term.  In trading Tuesday Green Mountain shares were up over 4%.

Investors should be assured that this company will continue to grow, and if management continues to execute as it has in the past, shares of the stock could move higher.  That said, the valuation at these price levels is too much for me and I’d wait for more of a pullback before buying shares.  While the growth story is intact, entry price on an investment is still important.     

I hope you can use this research method to help make healthy profits in small cap stocks.  While not all companies’ websites are as clear and transparent as Green Mountain Coffee Roasters’, companies that have strong career pages offer potential investors a glimpse into the growth prospects of the company.  And those that don’t, well, maybe that’s a sign that their growth strategies aren’t working and investors should steer clear.