Green Mountain Coffee Roasters (NYSE:GMCR) — CFRA Roasts Vermont's Green Mountain

Green Mountain Coffee Roasters Inc. (NYSE:GMCR), the Vermont-based specialty coffee and coffee maker company, last week received a fairly negative research opinion from the Center for Financial Research and Analysis. How it’s impacted the stock is the issue that Dan Amoss, Agora Financial’s editor of the Strategic Short Report, has investigated.

Dan Amoss shows how the weakness could be an important component in how to evaluate GMCR:

“Dow Jones Newswires reported on Wednesday that Green Mountain Coffee (NYSE:GMCR) is the subject of a negative report from the Center for Financial Research and Analysis (CFRA), a publisher of forensic accounting research. Dr. Howard Schilit, a former accounting professor and author of the excellent book Financial Shenanigans, founded CFRA.

“CFRA believes GMCR could soon face pressure on its gross margins, because inventories are not in balance with sales. This is something we noted in last week’s issue:

Green Mountain’s working capital efficiency isn’t impressive, either. Since the company’s sales took off in 2007, its cash conversion cycle has grown from 45 to 60 days. Accounts receivable and inventories have grown faster than sales in recent quarters. Acquisitions are partly to blame.

“I have not seen CFRA’s report. This inventory phenomenon is something I noticed when reviewing Green Mountain’s financial history.

“CFRA also highlights heavy insider selling of the stock (see insider transaction details here courtesy of Form4Oracle), and the likelihood that gross margins will be squeezed by rising raw coffee prices.

“Rising coffee prices are hitting the entire industry. In a story on retail food pricing trends, the Wall Street Journal yesterday reported that Starbucks doesn’t plan to push higher coffee prices through to customers. Instead, it will absorb the higher coffee costs, which will cut into profits.

“By pricing GMCR stock at an outrageously high valuation, shareholders have not even begun to worry about such risks, so the downside potential in the shares over the next 12 months is considerable.”

Dan Amoss is patient trading on GMCR because the bullish view on the stock is not giving up without counter-arguments fantasizing about how every household in China will own a Keurig machine in five years. Go figure.

To receive more specific trading recommendations from Amoss you’ll have to subscribe to the Strategic Short Report. It’s available through the Agora Financial reports page, found here.


Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]