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    Finally! Green Mountain Coffee Roasts

    By Kai Petainen | Forbes – Thu, Nov 10, 2011

    Today at the open, Green Mountain Coffee Roasters (NASDAQ:GMCR) dropped -30%.  Finally!

    This is a stock that has bothered me for quite a while.  It's a stock that would constantly look overvalued (to me), yet it kept going up.  A report comes out from Einhorn that complained about it -- and finally GMCR started to fall.  I would watch valuation after valuation from students, as they would struggle to justify the valuation.  Yet, it kept going up.  In some ways, I'd argue that Einhorn's report did something, and that something is called 'investor recognition'.  It created 'investor recognition', in that others became more aware of some of the things that others were already concerned about. 

    On Mar. 10th 2011 I wrote the article “Roasted by Green Mountain Coffee”.  Let me re-iterate those thoughts below.  Keep in mind that GMCR closed at $43.64 on March 9th, and I would have been bearish at that point as well.

    This is what I wrote on March 10th:

    Today, I felt as if I was roasted by Green Mountain Coffee Roasters (GMCR).  The news came out that GMCR was collaborating with Starbucks (NASDAQ:SBUX) and both of the stocks rose – the shorts were roasted.  From my quant perspective, I felt that the stock was a ‘thumbs-down’ (a short) as GMCR had a high PE, a high price/book, institutional selling, insider selling, a high short interest, a low Piotroski f-score and a high Dechow f-score."

    "Looking back at GMCR, it was one of those stocks that seemed to have a lot of quant factors going against it; but, it had at least one great factor in its favor – earnings momentum.  GMCR was a momentum stock and earnings momentum stocks are hard to time with regards to shorting.  Then this news comes out, and shorts are probably covering positions today and others might be placing their short bets.  When will GMCR drop?  I don’t know, but the ‘sisu’ in me doesn’t give ‘hold’ recommendations.  So I’m placed into a position where I have to say ‘short’ to GMCR, as more factors (to me) look negative than positive.

    Now I should walk over to Starbucks and get myself a Grande, Soy, No-water Kai (Chai).

    Kai Petainen's views on the market and stocks are his alone, and do not reflect the views of the Ross School of Business or the University of Michigan.  Kai teaches a class on quant screening, F334 -- Applied Quant/Value Portfolio Management, at the Ross School of Business.  Kai is a MFolio master at Marketocracy, and is featured in Matthew Schifrin’s book, The Warren Buffetts Next Door

     

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