Bears Are Still Afraid of Keurig Green Mountain

Shor- sellers continue to steer clear of Keurig Green Mountain.

Apr 10, 2014 at 3:40PM

Sometimes all you need to ward off hungry bears is a can of Coke. The market exchanges released the latest data on short positions last night, and we find that naysayers continue to avoid betting against Keurig Green Mountain (NASDAQ:GMCR)

There were 15.7 million shares of Keurig Green Mountain sold short by the end of March. That's not as low as the 13.6 million shares that were betting against the leader in single-serve coffeemakers in the past, but it is a sequential improvement from the 16.7 million shares sold short as of mid-March. We're also a far cry from the 38.5 million-share short interest that Keurig Green Mountain was sporting when the year began.

It's easy to see why the bears have moved on to bet against other companies. The moment that Coca-Cola (NYSE:KO) invested $1.25 billion for a 10% stake in Keurig Green Mountain it suddenly didn't seem as worthless to critics of the company. Coca-Cola's bet may have initially seemed like a play on the promise of the upcoming Keurig Cold carbonated beverage maker, but this was always about more than just the chance to make pop at home. Coca-Cola could have spent less to buy all of the shares of the global market leader in that niche. This was Warren Buffett fave Coca-Cola validating Keurig Green Mountain's coffee business, just as the king of cola has bought into companies distributing juices, bottled water, and other beverages.

Factor in a recently reworked deal with the leading premium coffeehouse chain and at least two new beverage platforms that Keurig Green Mountain will be rolling out in the near future, and it's hard to bet against Green Mountain. The end of patent protection for its K-Cup portion packs slowed growth, but it didn't kill it completely. Now we have a notable stakeholder and a couple of promising new systems on the way. 

Keurig Green Mountain isn't cheap. It's trading at a rich 27 times this year's projected earnings, and it's growing at a rate that typically warrants a less generous multiple. Coca-Cola's investment came at a much lower price than where the stock is perched now. However, betting against the undisputed champ of one-cup coffeemakers is still a dangerous bet. A new patent protection schedule will begin on many aspects of the Keurig 2.0 platform, which will roll out in the fall. Keurig Cold will follow in the next fiscal year beginning in October. All of these variables will make Keurig Green Mountain volatile, and while that is normally a juicy steak for shorts to fight over, there's also the opportunity for upside, with new appliances that may scare them even further away.

You can profit from your kitchen with Keurig Green Mountain, but don't forget the living room
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Rick Munarriz owns shares of Keurig Green Mountain. The Motley Fool recommends Coca-Cola and Keurig Green Mountain. The Motley Fool owns shares of Coca-Cola and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.

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