University Finance Case Study: Green Mountain Coffee Roasters Analysis

This finance case study analyzes Green Mountain Coffee Roasters (GMCR), examining its stock valuation and the factors influencing its share price. The study highlights the exponential increase in GMCR's share price, driven by sales growth and profitability. It delves into the concerns raised by David Einhorn, focusing on market potential, brand partnerships, and expiring patents, and assesses their potential impact on GMCR's future performance. The analysis evaluates the value of GMCR stock, considering Einhorn's criticisms and the company's financial strengths, to determine whether a buy or sell option is more appropriate for investors. The case study also explores the reasons behind the market's high valuation of GMCR, including its near-monopoly in the single-serving coffee segment, and the impact of its financial performance on investor sentiment. The study concludes with a recommendation based on the current market conditions.

Running head: FINANCE CASE STUDY
Finance case study
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Executive summary:...................................................................................................................2
1. Indicating why the stock market is valuing Green Mountain so highly:...............................2
2. Indicating which of Einhorn’s concerns resonate most with you:.........................................2
3. Assessing how each of Einhorn’s concerns will be affecting GMCR’s future performance:3
4. Indicating the value of Green Mountain Stock, while stating whether buy or sell option is
better:..........................................................................................................................................4
Bibliography:..............................................................................................................................6

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Executive summary:
1. Indicating why the stock market is valuing Green Mountain so highly:
The share price of Green Mountain was relevantly increased exponentially over the
period of time, where the values have been raised by 1,300%. The increment in share price
value was mainly conducted due to the enormous growth based on increased sales penetration
and consistent profits of Green Mountain over the period of five year. The financial
performance of Green Mountain has aggressively increased over the period of five years,
which has relevantly pushed the share price of the organisation. The news of the organisation
relevantly indicated a 125% YTD during 2011, which allowed the management to raise $1.3
billion from the market. Net income of GMCR relevantly increased from the levels of
12,843,000 in 2007 to 199,501,000 in 2011, which motivated the investor to increase their
exposure in the origination. In addition, the increased motivation of the investors relevantly
raised demand for its shares, while the supply remained same, which boosted the share price
of the organisation from the levels of $11 during 2009 to the high if $110 in 2011.
GMCR mainly achieved near monopoly conditions during 2010, where it held around
80% of the market in single-serving coffee segment. This eventually allowed the organisation
to generate high level of income from its operations, which raised its overall revenue
generation capability. Furthermore, the monopoly condition of GMCR relevantly allowed the
management to acquire total revenue of $2.6 billion during the fiscal year of 2011, which
rose from $341.651 million in 2007.

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2. Indicating which of Einhorn’s concerns resonate most with you:
Einhorn’s presentation relevantly portrayed an argument for the Bull Case, who
indicated the high level of growth and prospect in the GMCR. Furthermore, Einhorn
highlighted different level of problems in the current financial operations, which forced the
investors to question the current financial performance and condition of the organisation.
Einhorn directly criticised the Bull Case regarding the progress of GMCR and highlighted the
Market Potential, Brand Partnerships, and Expiring Patents. The points provided by Einhorn
directly indicated the problems in current accounting system, which was used by GMCR in
preparing the annual report.
Einhorn directly stated that the market potential highlighted by the Bull Case was not
present, where the organisation growth was slowing down. This decline in growth prospects
would directly have negative impact on its operations, where Einhorn saw little hope for
expanding beyond the high end of the market. The presentation further indicated that due to
the expiring patents of GMCR, the management is relevantly acquiring high level of exposure
in raising the monopoly conditions. The SEC inquiry on the organisation also raised an alarm
or investors, which depicts the unethical measure taken by the management in conducting its
operations. The major highlight of the presentation was the problems in accounting
disclosure, capital expenditure and channel suffering used by the management. Lastly, the
insider selling of GMCR relevantly increased where the management was sold about $172
million between January and October 2011. These highlights of the presentation for GMCR
relevantly increased concerns resonate for the stock.

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3. Assessing how each of Einhorn’s concerns will be affecting GMCR’s future
performance:
Einhorn relevantly indicated the financial distress in the current progress of GMCR,
where the future performance of the organisation will be at risk. Einhorn relevantly indicated
certain concerns reading the market potential of the organisation in gathering higher growth
in future, which was being focused by the management. The growth prospects in the
company were relevantly slowing as the anticipation of the management was not in line with
the market trend and position. The slow growth condition highlighted by Einhorn is a
relevant concern for GMCR’s future performance, as it indicates that the management will
not be able to continue the growth prospects.
Einhorn also anticipated that the Brand partnership of GMCR with Starbucks will
relevantly cannibalise the high revenues of the organisation, where only $0.15 will be earned
in each coffee is compared to $0.22. This would directly have negative impact on
performance of GMCR in future and hinder its growth prospects. Einhorn also highlighted
the expiring patents of the organisation, which can be a major concern for the continuity of
their monopoly on their products. The anticipation also depicted that the razor-razor blade
business model would fall apart once the high margin on its razor blade will not last. The
information indicated the major problems and hindrance in profits that might be conducted by
the company over the period of time. Lastly, the high capital expenditure was mainly
conducted by acquiring high level of debt, which was forcing the company’s free cash flow to
become negative and raises concern for the investor regarding its future performance.

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4. Indicating the value of Green Mountain Stock, while stating whether buy or sell
option is better:
The analyst counter attacking the arguments of Einhorn was relevantly focusing on
certain aspects and did not highlight the main concern regarding the financial performance of
GMCR. However, the analysis of the annual report and financial performance has relevantly
allowed the organisation to generate high level of income from operations. However, the
current share price valuation of the organisation is relevantly low, which can be a good
opportunity for a by condition, as the company’s overall growth protects is detected to be
adequate. Nevertheless, the problems that were highlighted by Einhorn relevantly indicated
that the share price of the organisation was overvalued and needs to be corrected over the
period of time, which is why the short position was taken by him.
The share price of Einhorn has relevantly corrected to adequate levels, seeing the
financial strength of the organisation, which might make the stock attractive for investors.
The low values of the organisation are relevantly considered an adequate investment
opportunity, which might allow the organisation to generate high level of income from
investment and minimise any kind of risk factors. Thus, buying the stock at the current level
would be advisable and beneficial for the investors.

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Bibliography:
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MANAGEMENT IN THE COFFEE INDUSTRY. Journal of International
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437-444.
Wasserman, I., & Trosten-Bloom, A. (2017). Enhancing Profitability Through Business
Process Excellence: The Green Mountain Coffee Roaster's Story. AI
Practitioner, 19(2).