We remain constructive on this stock. At $9.55 you are up 52% from $6.25. As a minimum we would expect it to get as high as about $10, the 200 day moving average, the trend line is at about $11 and if the count is correct levels at or above $16 are possible. But a bird in the hand etc.etc. You can play this with a running stop, simple cash in at a slightly higher level or go for the ride. All depends on your own constitution.
Through an acquisition of “Keurig” in 2006 this company effectively got a stranglehold on the single cup coffee brewing distribution system. The patents related to the K-cup system run out soon and this caught the attention of David Einhorn, a prominent hedge fund guy. Margin calls against the founder and other company heavyweights followed and here we are at $22, not $115. Interestingly the “great recession” barely made a dent in this stocks progression, proving once again that you can open the monetary floodgates but you cannot control where the water will flow. By the way, “Keurig” in Dutch means exquisite, meticulous, perfect etc. and that describes the marketing niche that this company, or it’s founder created and capitalized on very well. In a way it is comparable to Krispie Kreme Dougnuts , KKD. Both are shown below on a semi-log scale;
Notice that the count on this semi-log scale chart is different from the one above as it puts the 4th wave on the way up at under $10 instead of around $20 to $30. No idea which is correct but in any event KKD goes from $50 to $1, so if GMCR does anything like that it could ultimately get to a little under $3. The irony is that much of the margin calls are allegedly related to a sizeable position by the founder of GMCR in the KKD stock. Birds of a feather, do flock together! Looking at it in more detail:
It would appear that the C leg of the A-B-C is incomplete, still requiring a 5th wave down. Presumable, if it does that it could enjoy an exquisite bounce like KKD has had.
Comparable branding was done by Melitta, now more than 100 years old. As a private company no stock comparisons are available.
As anticipated the incentive for management by way of options has all but been eliminated with the stock at these depressed levels. From $2.60 to $0.65 is around a nice Fibo 76% so it is possible that the stock will recoup some of its losses, but odds are overwhelmingly against a major rebound given their burn rate, the weakness of one of their backers and our low expectations with regard to the metal itself. Stand aside.
Disney made new highs the other day, just above $50. In our view this completes the wedge and reaches the upper parallel boundary. Time to sell. See previous blog as well.