Market Overview

Is Anyone Buying Green Mountain?


Opinions seem to be divided on Green Mountain Coffee Roasters (NASDAQ: GMCR) on Friday, with some analysts thinking of it as all but a lost cause, and others hailing it an attractive proposition. That puts the company in an interesting position, but let's looks at the facts.

(Hat Tip @CNBCMelloy)

Green Mountain saw its stock shed roughly half of its value on Thursday. No matter how you want to swing it, that's a hugely significant loss that can be largely put down to the fact that the company cut its outlook, badly missed estimates and, as a result, lost the confidence of Wall Street. At the time of writing, it's tough to envisage how it will get that confidence back in the short term. GMCR fell 40% to $29.65 on Thursday.

Hedge fund manager David Einhorn, among others, has been saying for months that GMCR has been inflating sales, and that the company's high growth days are over. With short sellers questioning Green Mountain's practices, the evidence is pretty damning for the company. Some analysts are even saying that the new results mark the beginning of the end.

GMCR spokeswoman Suzanne DuLong said in a statement that, "As noted in our Annual Report on Form 10-K for our fiscal year ended September 24, 2011, our independent registered public accountants gave us a clean opinion. For the last two quarters, they have done their review and we continue to comply with generally accepted accounting principles."

That's great, but the soothing words have nothing to appease Wall Street, who continue to short the company.

However, the Wall Street Journal listed GMCR as one of its "most attractive stocks" on Friday, saying that the company reported net sales for 2Q12 increasing 37% to $885.1 million, from sales of $647.7 million in the prior-year quarter.

The report also pointed out that "abnormal trading volume of Green Mountain Coffee was found on May 3, reaching 87.19 million shares, 16 times heavier than usual day trading…are insiders starting to take huge profits by selling shares or exercising stock options? Academic studies have shown that insiders traditionally make higher investment returns than ordinary investors. Want to find out how they do it?"

Einhorn infamously released a detailed report on GMCR back in October, basically tearing the company to shreds. The company's new earnings report and outlook, regardless of how "attractive" it looks to the Wall Street Journal, would seem to validate everything that Einhorn said back then.

Follow me @BCallwood.

Posted-In: Earnings News Guidance Short Ideas Retail Sales Trading Ideas


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