Green Mountain Coffee Roasters ($GMRC) has built their empire largely on the back of a solitary product line, the Keurig coffee machine and their corresponding “K-cups.” This reliance on the success of one line has always made the company a popular target of analytical derision. While the stock has defied analyst expectation for months, gaining 93 percent on the year to correct a major drop that occurred from late 2011 to early 2012, the bears came out again full force on Sept. 23, as the stock dropped 7 percent.
While shares dipped today on general specualtion that a deal with Campell Soup Co. (CPB) would not benefit Green Mountain signifcantly, of lingering concern for the coffee company is how they will respond when the patents run out on the K-cups, the single-serving coffee brewing cups that have proven wildly popular in homes and offices. Green Mountain has responded to these concerns by hinting that they would engineer Keurig machines to not work with generics, though they haven't been forthcoming as to how exactly this will be accomplished.
Besides attempting to exclude imitators, Green Mountain has provided strong hints they’d like to get into the imitation business themselves. On July 16 the company trademarked the word “Karbon,” obviously continuing their preference for K-words, but more cogently announcing they were likely developing a product designed to compete against SodaStream International Limited’s (SODA) eponymous product.
SodaStream, however, enjoys full-spectrum dominance of its market. Barring an innovative anti-copycat development for the K-Cups, or an innovative copycat of their own with the Karbon, Green Mountain Coffee is facing a major revenue shortfall.
The stock was famously sold short by David Einhorn in Oct. 2011, who made a fortune off the move. EInhorn cited not the company’s ticking time bomb of patent expiration, but rather their dodgy accounting practices. While cleared in an SEC investigation in 2012, allegations of accounting discrepancies, which include sales misstatements and questionable inventory shuffling, continue to dog the company.
And now the shorters are back out in droves, as the bearish sentiments on the company seem to be once again taking hold. The short interest on the company is now 32.09 million shares, or 26 percent float.
Rebounding slightly after a shard dip in ealry trading, Green Mountain was down 4.88 percent on the day to hit $80.05 a share.
(image courtesy of Wikimedia Commons)