Green Mountain Run Looks Stretched After New Analyst Buy Rating

Investing

Published: September 10, 2012 2:18 pm

Last Updated: April 27, 2020 10:40 pm

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) has been killing the short sellers in the last two trading sessions. What got the whole move started as wan analyst upgrade on Friday morning. It was Lazard Capital’s analyst initiation of coverage at a “Buy” rating with a whopping $39.00 price target objective. This is a scenario that looks like it may already be ahead of itself just on simple logic.

That price target compared to a prior closing price of $24.58, and that in turn translated to implied upside of well over 50%. For anyone to get excited about Green Mountain, there would have to be quite high upside expectations because of its history. Still, we now have to wonder if this two day monster price run is now too much.

We have seen a 25% gain or so in the stock based on the momentum solely around this analyst call. Shares rose 13% to $27.83 on Friday and the stocks gain of almost 13% to $31.35 makes a total gain so far of 27.5%. Not bad just for an analyst’s “Buy” rating.

Green Mountain in some ways is no different from a drug stock, even if it is a coffee roasting and coffee retail play. The company faces a patent cliff as K-cup packs and Keurig systems are soon to get even more competition.

As of mid-August, the short interest was 40,037,307 shares and that was the fourth consecutive gain from when the short interest was only 23.25 million shares back in mid-June.

It is important to remember that the 52-week trading range is $17.11 to $115.98. It would be easy to say that this much of a run up just from an analyst call is too much of a move. In any normal scenario it would be too much of a move up. Starbucks Corporation (NASDAQ: SBUX) has seen its shares rise by less than 1% at the same time. The problem is that this is not a normal situation because Green Mountain has been a highly shorted and a highly controversial situation. Logic just might not apply.

Imagine if one more analyst decides that it is time to be positive again here…

JON C. OGG

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