Caution: This stock is hot

I’m talking about Green Mountain Coffee Roasters Inc., the single-serve giant that struck a big deal with Dunkin’ Donuts this week. That agreement was just the latest among many developments that helped make Green Mountain one of the country’s most popular — and most expensive — stocks over the past four years.

Shares of the Waterbury, Vt., company have soared by 1,035 percent since the end of 2006, thanks to the explosive growth of the single-serve coffee market and bullish investors who see more of the same ahead. Green Mountain’s stock market value has ballooned to $5.9 billion.

But those shares, worth $41.33 yesterday, have become very expensive, by any measure. Green Mountain stock trades at about 40 times earnings expected in the current fiscal year. Measure the price of those shares in relation to the company’s cash flow and Green Mountain is more expensive than any company in the Standard & Poor’s 500 index, according to Bloomberg News.

Short sellers, who bet the value of a stock will decline, have piled into Green Mountain. There were more than 27 million company shares sold short at the end of last month. That’s about one of every four Green Mountain shares available for trade. The crux of the argument against Green Mountain stock: It’s too expensive, and everything has to go just right to support that value. Shorts also wonder about an important patent due to expire next year.

Green Mountain became the focus of all that attention by commanding an 80 percent share of the booming single-serve market. In 2006, the company made $8 million on sales of $224 million. Last year, it earned $79.5 million on sales of $1.4 billion. That’s a growth story.

The company, which has been selling coffee for three decades, jumped into the single-serve business in 2007. Green Mountain already owned 30 percent of Boston-based Keurig Inc. and it’s K-cup single-serve technology, which was popular in office settings. It bought the rest of Keurig in 2006 and soon began to pitch the brewing system to the home market, no sure bet at the time.

“Green Mountain is changing the way American consumers make coffee,’’ says analyst Scott Van Winkle of Canaccord Genuity, who recommends the company’s shares. “They are the 800-pound gorilla in single-serve.’’

Green Mountain approaches coffee just like Gillette manages the shaving business. The basic idea: Sell quality single-serve brewers nearly at cost and then make big profits on individual coffee packets or cups, just as Gillette sells razors inexpensively and earns its real money on blades.

Coffee makers that use Green Mountain’s patented systems — manufactured by the company under the Keurig brand or licensed to others, such as the owners of Mr. Coffee and Cuisinart — accounted for 25 percent of all coffee-maker unit sales during the last three months of last year, according to the company and analysts. That means there were 2.6 million brewing machines sold during the quarter, and they will all need coffee from Green Mountain. That virtually guarantees a bigger, steady volume of coffee sales throughout this year.

One challenge ahead: keeping up with that explosive pace of growth of sales and distribution. Four years ago, the company sold its coffee in 200 supermarkets. Now it’s available at 14,400 locations.

Green Mountain sells its own brands of coffee in individual cups and strikes licensing deals with other coffee companies. Dunkin’ Donuts is joining Folgers among the big names selling coffee in the Green Mountain system, along with smaller premium names like Newman’s Own Organics.

Starbucks may be next. It sells single-serve portions in stores under an arrangement with Kraft Inc., but that contract expires at the end of this month. Starbucks has already notified Kraft it will not renew that deal, but remains coy about its single-serve plans.

Some investors wonder if Green Mountain could become a merger target for bigger food companies like Nestle.

“Any time you see a new player change the landscape, just turn it upside down, it becomes attractive to the dominant players,’’ Van Winkle says.

Mergers? Who knows. For now, Green Mountain is simply the hottest stock story in New England.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.