Einhorn’s Case Against Green Mountain Coffee
Einhorn made a 110-slide case against the coffee company at the Value Investing Congress in New York on Monday afternoon. The Wall Street Journal discussed several of his comments. Einhorn criticized the company for its “poor transparency,” “accounting discrepancies,” confusing quarterly financial presentations and June quarterly results that look “too good to be true.” Einhorn is looking to Starbucks (SBUX) instead, explaining that Green Mountain Coffee is priced way above the range of many households. Further, while GMCR does have a deal in place with Starbucks to distribute the Seattle coffee house’s coffee in single serve k-cups, GMCR will actually see very little of that profit. Moreover, Einhorn said that “capital spending is growing much faster than the business,” adding, “management has been incredibly vague about where the money is going.” According to the Wall Street Journal, “the stock is trading at a multiple of about 51 times the next 12 months earnings.” Barrons reported that Einhorn “called the company’s return on capital ‘merely adequate’ and claimed that GMCR is burning cash.”
A Little Background on David Einhorn
David Einhorn is one of the most successful long/short equity hedge fund managers of the past decade. He founded his Greenlight Capital in 1996. Since then, his fund has returned 21.5%. Greenlight returned 15.9% in 2010. Einhorn explains his investing strategy as “We try to find things that are misunderstood,” he says. “Then if we think something is misunderstood then we figure out if it’s misvalued. And if we figure out that it’s misunderstood and misvalued, then we tend to invest”.
Einhorn has also earned dome esteem when it comes to predicting market movements after he criticized Lehman Brothers just before its collapse.