Tuesday, October 25, 2011

Shorting The Green

I don't short stocks, but every once in a while I am tempted to do so. For those of you value investors who do short, you may want to consider Green Mountain Coffee Roasters (GMCR) as a potential candidate. In a recent presentation, David Einhorn discusses some of the features that make this a great short candidate: a high price, a lack of free cash flow, some serious accounting questions, frequent capital raises (despite accounting profitability), and some interviews of former employees suggesting a lack of transparency. The slides can be found here.

Unfortunately, the stock has already fallen quite a bit since the presentation came out last week. However, the company's P/E of 70 remains at rather elevated levels.

Disclosure: No position


Anonymous said...

Just because a company's showing negative free cash flow doesn't mean it's a good short candidate. Would you have wanted to short Starbucks or Home Depot during the 90's? What about Lowe's? All three of those companies sported negative free cash flows because they were plowing back all their operating cash flow and then some into growing their business.

Taylor said...


I don't think its just the negative free cash flow. In the slides, Einhorn mentions many other problems with the company - questionable transactions, patent expirations, high prices relative to competitors products, etc.

Negative free cash flow is only one of the many problems...

Saj Karsan said...

Seriously, Anon. I'm not sure how you can pick one point and make it sound like it's the only reason something is a short. If SBUX had a really high P/E, accounting issues, important patent expiries etc, it would be a candidate to short as well.