+ Watch GMCR
on My Watchlist
The Company together with its subsidiaries is engaged in the specialty coffee industry.
Investors who shorted Green Mountain for any extended period of time have been absolutely crushed as the stock soared more than 1,000%, that's right a thousand percent, over the past four years.As I search for a few select shorts to hedge my mostly long CAPS portfolio, GMCR seems to fit the bill. I use a Keurig at the office and it's not bad, but I don't think that the company will experience the rapid profit growth that Mr. Market currently seems to be pricing in.One major headwind that Green Mountain faces is a huge increase in the price of coffee beans, which according to Barron's account for nearly a quarter of the Company's cost of goods sold. Coffee bean prices recently hit a twelve-year high:Price no buzz kill for java lovershttp://www.freep.com/article/20100828/BUSINESS07/8280315/Price-no-buzz-kill-for-java-loversAdd to this the fact that the company's inventory levels are rising rapidly. As someone who has a background in the auto industry, I know that rising inventory levels are often a sign of bad things to come. Again according to Barron's Green Mountain's day's supply of product has risen to 84, from 74 from the same period a year ago.Furthermore, while the company's revenue growth is astounding at 64% year-over-year in its most recent quarter, its growth rate is slowing. 64% is down from 77% in Q4 and 68% earlier in 2010. In this sort of economic environment, it's easy to see consumers being hesitant to pony up a premium price for the convenience of Green Mountain's coffee products, when the good old coffee pot will do the trick at a fraction of the price.Even if higher input costs and a slowing economy don't take their toll on GMCR, the fact that the patent protection on its "K Cups" is scheduled to expire in 2012 might.At 44 times its estimated 2010 profits, I have a feeling that GMCR has further to fall in today's weak market.Deej
Good summary of short arguments, Deej. But GMCR hedges a significant portion of its coffee bean purchases and coffee seems to have an inelastic supply/demand price curve so it can pass on any LT price increases. Growth at the current compound 50% per annum is assured for many years due to current single digit market penetration in US plus many strong new partners such as Mr Coffee, Folgers and Lavazza (Europe). They have acquired licensees and now control marketing directly. Management is making all the right moves. The SEC revenue recognition inquiry will blow over and then you better have covered your short. Oh, did I mention numerous possible acquirers are rumored to be looking at GMCR?As an old Auto Industry guy, have you considered going back to riding a horse lately?
Look at this article: http://www.cnbc.com/id/39687608I think you dream a little bit of any takeover. They will just loose their business when their "Partners" will just make the single serves in the way they want.
I think the stock will continue to go up for awhile. I have November call options to protect myself.In fact short term the chart appears to have a head and shoulders pattern upside down which tells me it could return to its all time high shortly.I think the sec will find more accounting problems but it will take time to uncover them. I am looking for December or January for the fallout.I dont think the SEC would investigate the company for reporting a mistake from a couple quarters ago for a three cent difference which they have already admitted to.Thanks for your input.
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