Was Green Mountain Coffee Roasters Too Hot for Einhorn?

“Our coffee was too hot, our apple was bruised, and our iron supplements didn’t go down smoothly,” wrote David Einhorn to shareholders on January 22, describing Greenlight Capital’s fourth-quarter results.

Even compared to Apple’s (NASDAQ:AAPL) slide and a bearish bet on the iron ore supply, his stance on Green Mountain Coffee Roasters (NASDAQ:GMCR) turned out to be a particularly bad one. In the letter, Einhorn acknowledged that his short position in the company wrecked the hedge fund’s portfolio return for the fourth quarter.

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“The losses in the short portfolio were broad based; while the S&P 500 was down modestly in the quarter, our average short rose about 10%,” he said. “Green Mountain Coffee Roasters was the worst offender, with a 74% advance that wiped out our 2012 profits on the position.”

After his admission was made public, shares of the coffee company rose approximately 6 percent, as his error indicated that the company was better positioned that Einhorn had thought. Shortly after 2 p.m. Easter Standard Time, the stock was trading at $43.53…

Shares of Green Mountain Coffee Roasters also received a boost from a positive recommendation from Insider Monkey. On Wednesday, it published an article that argued that the stock was a good investment pick, citing the coffee company’s relatively low price-to-earnings ratio of 17 and better-than-expected earnings last quarter. For comparison, Starbucks (NASDAQ:SBUX) has a price-to-earnings ratio of 30.26. While Starbucks is working to take market share away from Green Mountain Coffee Roasters with its Verismo single-cup brewing system, Green Mountain still dominates the United States.

The coffee company has even taken steps to ease the competition; Green Mountain has begun manufacturing Starbucks-branded Vue packets for its Keurig Vue Brewer. Analysts at Argus saw that move as a positive, and upgraded the share to Buy from Hold with a price target of $50.

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