Green Mountain Results Perk Up Short-Sellers

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What Impact Did the Caffeine Rush Have on the Stock Price?

The cup has been more than half empty at Green Mountain for many months. Shares of the company have been under heavy selling pressure for more than a year. David Einhorn, hedge fund manager of Greenlight Capital, highlighted his doubts on the company’s accounting methods and sales figures last October. Furthermore, founder and chairman Robert P. Stiller conveniently sold his largest amount of Green Mountain shares in February since at least 2003. The insider sale raised eyebrows, as Starbucks (NASDAQ:SBUX) introduced a new home-brewing machine just weeks later.

However, the latest quarterly results sent Green Mountain shares surging more than 20 percent. On Wednesday, shares climbed above $35, their highest level since May. The large move can be at least partially explained by the high short interest in shares. As of October 31, 2012, the company’s short interest reached 32 percent of shares outstanding, compared to 19 percent in mid-July, according to Dow Jones.

CHEAT SHEET Analysis: Is Green Mountain’s Earnings Announcement a Positive “Catalyst for the Stock?”

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. There is no denying that the earnings announcement was a catalyst in the short-term. The company even surprised with stronger-than-expected cash flow in the fourth quarter. Looking forward, Green Mountain raised its forecast for the new fiscal year to $2.64 to $2.74 per share, compared to a prior estimate of $2.55 to $2.65.

Even though Green Mountain looks to be improving and continues to expand its presence in stores like Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST), the company’s past accounting issues and share plunges may overshadow any longer-term catalysts. Investors looking to take a drink of Green Mountain after the recent earnings release should handle this cup of volatility with extreme caution.

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