Einhorn Isn't Always Right, You Know

The Value Investing Congress is now less than two weeks away, and some traders are betting that Monster Beverage (NASDAQ: MNST  ) will be David Einhorn's next short target.

Shares of the energy drink maker tumbled 6% yesterday, just on the mere chance that the billionaire hedge fund investor will present a bearish thesis on Monster during the annual investing conference.

What's the big deal?

Well, if you've been following Einhorn's presentations over the past few years, you would want to avoid -- initially, at least -- the stock that he singles out as overvalued every year.

  • Three years ago it was St. Joe (NYSE: JOE  ) . The stock slipped 10% the day that Einhorn called out the way that the company's massive Florida real estate holdings are being overstated on its balance sheet.
  • A year later it was Green Mountain Coffee Roasters (NASDAQ: GMCR  ) . The stock tumbled 10% the day that Einhorn knocked the Keurig company's accounting practices. He also elevated fears of the K-Cup patent expirations that were a year away.
  • Last year his crosshairs were locked in on Chipotle Mexican Grill (NYSE: CMG  ) . A stiff valuation and intensifying competition from Taco Bell propelled his bearish argument on the burrito roller. Chipotle slipped 4% on the day.

Einhorn isn't brief. The St. Joe presentation was 139 slides long! The negative sentiment also lingers. St. Joe shares went on to tumble another 10% the following day. Three trading sessions after roasting Green Mountain, that stock had fallen 24%. Chipotle stock closed 11% lower four days after Einhorn's knock.

The damage got even worse for St. Joe and Green Mountain, with those shares losing 38% and 74% of their value, respectively, a year after Einhorn's presentations.

Chipotle will buck the trend. We're not a year out just yet, but the stock is trading 28% higher at the moment.

Company  Date of Einhorn's Presentation 

Prior Close

A Year Later

Now

St. Joe

Oct. 13, 2010

$24.54

$15.30

$19.53

Green Mountain

Oct. 17, 2011

$92.09

$23.66

$85.16

Chipotle

Oct. 2, 2012

$316.13

N/A

$404.90

Source: Yahoo! Finance.

Is Einhorn really about to rip into Monster? It wouldn't be a surprise if he did. It has many of the same characteristics that drew him to Green Mountain and Chipotle as short candidates. All three are consumer-facing stocks that seem to trade at lofty earnings multiples.

Monster is currently trading at 22 times next year's projected earnings, a ratio that is roughly double its current growth rate.

The three consumer stocks also have -- or at least had -- looming events that could prove problematic. Green Mountain had the K-Cup patent expirations taking place 11 months after Einhorn's presentation. Chipotle faced the expansion perils of saturating established markets and reawakened competition.

Monster's shot could be regulatory agencies cracking down on the consumption of energy drinks, particularly by children and teens.

Whether Monster is Einhorn's target or not, learn from history. The first day's dip isn't a buying opportunity. Get back in a few days and possibly even a year later. Einhorn's arguments move stocks in the near term, but the fundamentals haven't proven as flawed as he may have you believe.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 04, 2013, at 9:13 AM, michaelT2 wrote:

    If you're worth billions, what excitement can life hold? You can guy whatever you want - except power. So, I suspect that with Einhorn it's not the money from the short he's looking for. He's looking to wield power. He apparently enjoys the 'crash effect' his pronouncements have on a stock and doesn't much care about the money. GMCR's stock price when from over $100 a share to the teens yet he never covered his short. It's almost as if he was looking to see if he could help bankrupt the company. But he's waiting too long and Green Mountain has recovered from his "evil machinations." (Wahaha!) The stock is shooting up and has incredible momentum. Green Mountain even has its first ever investor's conference on the 10th of this month. It's being touted (leaked?) to expect that the innovation coming from that conference will be more than you'll see from Apple whose conference is the same day. So, if Einhorn doesn't cover soon, it'll be too late. I get the impression, though, that he's doesn't care. Since he's worth billions, what's a few paltry million?

  • Report this Comment On September 04, 2013, at 10:58 AM, TMFLomax wrote:

    Great piece. None of these people who have such high degrees of influence over stocks are always right; there are a lot of examples. They're worth listening to and assessing their opinions. But following blindly -- heck, no.

    Great piece Rick.

    Alyce

  • Report this Comment On September 05, 2013, at 5:15 AM, lwbaum wrote:

    It is important to keep your point in mind that even the most successful investors are sometimes, or often, wrong. We should all remember to think for ourselves and not just follow anyone blindly.

    On a separate issue, I'd like to commend critics who point out problems in companies and stocks. Criticism provides a valuable service in bringing problems to light and helping prevent investors and other companies from repeating them. Like police, judges, or investigative reporters, they can be wrong, but when they are right, they can be an important check on fraud and irrationality.

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