There’s something a little wrong with seeing the hottest coffee stock on the face of the planet trading sharply lower on National Coffee Day, however that’s exactly what is happening today. Shares of Green Mountain Coffee Roasters (NASDAQ: GMCR) are set to open down $5.26 or 14.1% to $31.75. Just yesterday the stock closed at $37.01, a new all-time high, before releasing news that an SEC probe would investigate the company’s revenue recognition practices after the disclosure of an accounting error in their latest earnings release.
According the CNBC, the accounting error amounts to a $0.03 overstatement in their latest quarterly earnings report. This would be the difference between a slight beat and a slight miss. Although shares of Green Mountain have performed impressively since the March 2009 bottom, it continues to draw the ire of short-sellers–as of yesterday, over 20% of the float was short. This should help give some ammunition to that group.
Just last month, the New York Times ran a feature piece on the single-cup coffee trend focusing in the Vermont-based Green Mountain Coffee. Of note was the fundamental dilemma for Green Mountain Coffee whereby they are attempting to positions themselves as an environmentally friendly, socially responsible company while at the same time leading consumers to increase their plastic consumption while drinking their coffee. In order to make the single-cup brews, Green Mountain packages one cup’s worth of coffee in a plastic encasing that a Keurig coffee maker subsequently runs hot water through. Upon completion of the brewing process, the coffee drinker simply throws away the waste. These plastic containers are neither reusable, nor biodegradable.
That being said, the company recently completed a solar power system at their Vermont facilities and consciously operates under the motto “Brewing a Better World.” In order to do so, Green Mountain selects coffee beans from growing regions where certain minimum humanitarian thresholds are met.
The Bulls and Bears in GMCR have been battling over whether the company’s K-cup single-brew coffees for the Keurig system represents a fundamental shift in the way people consume coffee, or just a passing fad with diminishing prospects for future growth. While the growth unquestionably has been impressive, that debate will now shift to the company’s management and accounting practices.
Shares will open below the 50-day moving average but above the 200-day in the $28.50 area. Some might argue that this is no way to treat an innovative coffee company on National Coffee Day yet many investors rightfully sell first and ask questions later upon the commencement of an SEC investigation.
Disclosure: No relevant positions, but presently drinking a Keurig-brewed cup of Green Mountain Coffee.