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Einhorn Isn't Always Right, You Know

By Rick Munarriz - Sep 4, 2013 at 8:33AM

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Monster Beverage may be his next target, but that isn't the end of the world if true.

The Value Investing Congress is now less than two weeks away, and some traders are betting that Monster Beverage (MNST 0.81%) 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 (JOE 0.81%). 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 (GMCR.DL). 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 (CMG 2.00%). 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.

Longtime Fool contributor Rick Munarriz owns shares of Green Mountain Coffee Roasters. The Motley Fool recommends Chipotle Mexican Grill, Green Mountain Coffee Roasters, and Monster Beverage. The Motley Fool owns shares of Chipotle Mexican Grill and Monster Beverage. 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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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,663.70 (2.00%) $32.61
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
GMCR.DL
Monster Beverage Corporation Stock Quote
Monster Beverage Corporation
MNST
$90.02 (0.81%) $0.72
The St. Joe Company Stock Quote
The St. Joe Company
JOE
$42.42 (0.81%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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