Featured Idea Revisited: Community Shorts Green Mountain Coffee

By: SumZero Staff | Published: May 07, 2012 | Be the First to Comment

(The short call on GMCR was featured in a past SumZero Weekly Market Dispatch email)

Date of Weekly Market Dispatch Email: January 13, 2012
Price at Recommendation: $46.97
Recent Price: $24.26
Community Sentiment: 54% Short, 38% Long, 8% Hold

What the Community Said:
“The patent for the K-Cup expires in 2012. This means that any competitor, Starbucks, Peet's, Nestle or even grocery stores with their private label brands can make their own K-Cups. This will flood the market with K-Cups and hurt GMCR’s stellar sales.” Hedge Fund. New York, NY.

“I know it is tough to short on valuation alone, but this short is motivated by consensus management selling and in large size. The CFO has sold 38% of her shares, General Counsel 87%, President 13% Other Directors 20-35%.” Hedge Fund. Seattle, WA.

“Catalyst: Increasing competition due to patent expiry in September 2012 for the K-cup technology. I believe competitors are letting GMCR grow the single-cup market for them and getting these machines in homes at GMCR's expense. Once the patents expire, I see private label manufacturers offering K-cups. Not to mention, other brands will step up their own single-cup offerings. As such, Street earnings expectations for this will not be met in the out years.” Hedge Fund. Chicago, IL.

What Happened:
Shares closed at $25.87 on May 3, 2012. The speciality coffee company lost 48% of its market value on Thursday thanks to serious concerns about growth prospects and the loss of patent protection on the company’s K-Cups product. New concerns relating to current management’s ability to correct the situation are now surfacing.

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