I am not supposed to revisit Green Mountain Coffee Roasters (GMCR) until next month, but the stock has fallen off a cliff since my original post, so I thought I would take a look at it now and see what is going on.
For a quick recap:
- GMCR are the makers of the K-cups which turn a little plastic pod into a cup of coffee
- David Einhorn made major waves in 2011 when he presented GMCR as a short investment opportunity.
- The patent on the original K-cup design expired in 2012.
- David Einhorn finally closed out his famous short position on GMCR in late 2014 for a loss.
- In late 2014 ( Just in time for Christmas! ), GMCR introduced their new plan to continue dominating the K-cup world. They were going to use digital rights management (DRM) to control what kind of K-cups could be used in their machines.
- By early 2015, it was becoming apparent that customers did not approve of GMCR’s DRM master plan.
- In early 2015, I blogged that perhaps David Einhorn was correct and was just off on his timing.
When I originally blogged on 8 February, 2015, GMCR was priced at $118.89 per share. Today GMCR is sitting at $70.36 per share. That is a over a 40% drop! Anyone who ignored my disclaimer and followed my idea would have profited handsomely by shorting GMCR.
So, what happens next?
I think GMCR continues to flounder, though I don’t expect it to be in a fashion quite as spectacular as the previous 5 months. Just looking at the Amazon reviews on their DRM machine gives you a glimpse into the kind of company GMCR is. When I linked to the reviews in my original post, they were mostly negative. Now 35% are five-star reviews and 25% are four-star reviews. Either people suddenly fell in love with DRM, or something else is going on. I bank on something else. If you read several of the positive reviews you will start to notice the phrase, “Thanks Keurig, for the free pods for this review”.
What does that mean?
GMCR is attempting to bribe their way to positive reviews by giving K-cups away in exchange for kind words on Amazon. This seems like an underhanded way to fool people into buying their DRM coffee maker. Companies that would resort to these types of tactics are not the kind of companies that make great investments. What else would they do to fool customers?
What about investors? Would they attempt to fool them as well?
GMCR has also unveiled the Keurig Kold machine which should be coming out at some point in the not so distant future. The Keurig Kold is supposed to cost a ridiculous $300 or so. This video sums up how silly the idea of the Keurig Kold is. How many cans of Coke could someone purchase for $300? I predict an even worse performance than the DRM K-cup fiasco.
I like K-cups, but I don’t like GMCR.
Disclosure: I have no positions in any stocks mentioned in this post and have no plans to initiate any positions in any stocks mentioned at the time this was written. This post is for informational purposes only and is not intended as investment advice for anyone.