Green Mountain Coffee Roasters Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rule Breaker pick Green Mountain Coffee Roasters (Nasdaq: GMCR  ) are switching to decaf this morning, getting hammered by as much as 14% today with little reprieve as renowned hedge fund manager David Einhorn made negative comments about the company at the Value Investing Congress in New York.

So what: Einhorn, president of Greenlight Capital, has shorted the K-cup maker for a variety of reasons, including a "litany of accounting questions," outpaced capital expenditures, and "looming patent issues." In addition, Whitney Tilson, who made headlines with his public bearish debate with Netflix (Nasdaq: NFLX  ) CEO Reed Hastings earlier in the year, has come out and disclosed he is also short Green Mountain shares.

Now what: Green Mountain has been on a streak for the past couple years, and if you bought in when this stock was first recommended by our Rule Breakers team, you'd be sitting on an 818% winner. Einhorn believes that the company's earnings are "too good to be true." Whenever you have a stock that has a run like this and skeptics pop up, it's always good to check your initial investment thesis and see if it still holds. Einhorn is known for capitalizing on the financial crisis -- he was short a handful of financials, including Lehman Brothers -- so his statements are bound to draw a lot of attention.

Interested in more info on Green Mountain Coffee Roasters? Add it to your watchlist by clicking here.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and Netflix. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On October 17, 2011, at 3:27 PM, walt373 wrote:

    Truth, you're ruthless! I shorted this on Friday. 100% luck of course, not complaining though.

  • Report this Comment On October 17, 2011, at 5:23 PM, naughtyguy wrote:

    I down thumbed this stock way too early. It lost it's status as a momentum stock for sure!

  • Report this Comment On October 18, 2011, at 8:52 AM, mickicommerce wrote:

    Clearly an attempt (successful for at least at a day!) of Mkt Manipulation... which I assume can be done, attempted by Short Sellers without regulatory implications!

    There is NOTHING in GMCR's fundamentals driving anything than its continued strong prospects...

    including: (1) any acct'g irregularities (this is VERY OLD NEWS...it was addressed over a year ago by making some very minor adjustments atSEC;'s recommendation), (2) that its K-Cups patent(s) expire next year (there is a long history of this happening at Consumer Product and other Industry company's, and that 'guess what, the company had a Plan to address it via new patents and/or new technology delivering relevant and differentiated consumer benefits to its beachhead target consumer group'), and (3) it appears from public domain data and GMCR public disclosures, filings, etc. it has still only tapped a relatively small market share of its defined target consumers and has huge headroom remaining for increasing its household and commercial market penetration as well as increasing usage among nits current medium and heavy users via new offerings I assume are coming over time, and (4) its K-Cups pricing is NOT too high when viewed within the context of its target group and not the general US population (of course consumers who like coffee and are out of work and are looking for more 'value/economy/low priced' brands that are less convenient to make than K-Cups balk at the price... BUT these folks are NOT part of GMCR's target group!).

    I look forward to reading, seeing any REAL ANALYSIS on GHMCR based on facts and well documented hypotheses, etc. ... not on the flimsy, unsupported 100+ slides shown yesterday by Einhorn who did succeed at his apparent objective: drive the stock down for short sellers to regain some of their losses the past year or more on this investment... he also exposed himself and his firm/fund as 'THE EMPEROR WITHOUT CLOTHES" relative to good business analysis.

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