The Contrarian Blog

It's Been a Tough 2012 for Green Mountain Shorts

by Elizabeth Harrow 2/22/2012 3:51 PM
Stocks quoted in this article:
Publication: "CNNMoney"
Publication title: "Green Mountain Coffee's new Vue"
Publication Date: 2/16/2012
Brief Summary:

This article takes a cautious look at Green Mountain Coffee Roasters, Inc. (GMCR), the high-flying stock that short sellers still love to bet against -- including, most notably, hedge fund manager David Einhorn. While GMCR impressed Wall Street with its latest earnings report in early February, anxiety is ramping up as the company's K-Cup patents approach their September expiration date. In an attempt to juice sales, the Vermont-based coffee giant has now launched the Vue -- a revamped version of its brewing machine that's meant to lure higher-income customers. However, as the author observes, many traders remain skeptical as to whether GMCR's rapid growth is sustainable, and concerns about the company's accounting practices continue to linger.

Contrarian Takeaway:

Despite last October's Einhorn-related nosedive, GMCR has notched an impressive gain of nearly 70% over the past 52 weeks. In fact, in 2012 alone, the shares have surged 55.5%. Following that earnings-inspired gap higher on Feb. 2, GMCR has elbowed back above its 120-day moving average -- which could now resume its previous role as support.

If the equity's positive price action continues, the massive crowd of bears betting against GMCR may soon be forced to hit the exits. Short interest accounts for a noteworthy 17.9% of the equity's float, pointing to a sizable supply of sideline cash. At GMCR's average daily trading volume, it would take nearly a week for all of these bearish bets to be covered.

While the stock's volatile history may be a deterrent for traders with modest risk appetites, it seems premature to count GMCR out. The decline from last year's lofty heights, as well as GMCR's subsequent rebound on the charts, could offer a compelling opportunity for contrarians.

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