Green Mountain Coffee Roasters Surpasses As Worst Stock of 2011

Includes: GMCR, OSTK
by: Gary Weiss

It's a close question: What was the worst stock of 2011, (NASDAQ:OSTK) or Green Mountain Coffee (NASDAQ:GMCR)? is blessed with a number of attributes that puts it in competition for the worst stock honors, notably an inept management team headed by the conspiracy theorist Patrick Byrne. Byrne is such a nut that he hired a bunch of low-lifes to create a web site to attack his critics and spin his delusional theories. Although it was a work of fiction, it used real names -- and resulted in a potentially catastrophic libel suit in Canada.

It's not every day that the CEO of a public company gets into that kind of trouble. And the company's accounting is a notorious mess. For that and other reasons, mainly the ethical horrors perpetrated by the company's management, Overstock has a kind of permanent hold on the "worst company of the era" award, sort of the way Laurence Olivier was possibly the 20th Century's best actor but other actors deserved annual awards as well.

Green Mountain was recently the subject of a Reuters interview with noted hedge fund manager David Einhorn, and reading through that interview I became convinced: Green Mountain is, by dint of several attributes, the worst stock belched forth from the markets in 2011.

First and foremost is the sheer size of the company. Its market capitalization is in excess of $7 billion, making it far larger than the $180 million market cap of Overstock. Green Mountain is simply a juicier bad company, particularly when you consider its aroma -- and I don't mean the stench of its overpriced coffee.

I'm taking about the odor of hypocrisy.

Unlike Overstock, which would never deign to acknowledge that its critics' charges might have basis in fact, the Green Mountain board's audit committee engaged in the charade of a review of the company's accounting practices. They had been criticized by Einhorn and blogger Sam Antar.

Well, surprise surprise, the audit committee produced a clean bill of health. But as Einhorn sees it, the audit committee review lacked credibility. He put it this way to Reuters:

Simply saying that you take allegations with misconduct seriously does not mean that you actually take the allegations of misconduct seriously. In other words, their response came only about three weeks after the presentation and there was an enormous amount of material that if somebody was going to take the material comment seriously, they would have to review. It doesn't seem to make a lot of sense to me -- or even be possible -- to think that somebody who took our concerns seriously would even be able to review it in three weeks. As a result, it kind of feels like a whitewash to me.

But doubletalk wasn't enough to put Green Mountain over the top. To me, what really makes the company No. 1 as a bad company is the staggeringly problematic character of its accounting. As white-collar crime expert Antar pointed out in his blog a couple of weeks ago, in a post entitled "Where are the Missing Beans?" the company's numbers just don't add up.

It takes a special kind of incompetence to produce that kind of idiocy in a quarterly financial statement, but Green Mountain Coffee managed to pull it off.

Now, to be fair, Green Mountain Coffee's management isn't outwardly slimy. It doesn't have a crew of thugs roaming the Internet to bully critics, sometimes using racial epithets -- as happened to me when a nauseating Overstock thug named Judd Bagley used a racial epithet ("curry hole") that referred to my Indian-born wife. Green Mountain didn't have one of its people contacting Sam Antar's estranged wife, as Bagley did.

Green Mountain hasn't employed street thugs. It doesn't have the home-state media in its pocket, as Overstock does. Instead, it is blessed with some of the most clueless analysts I've ever seen. They more than make up the difference.

Clueless accounting, clueless analysts, and a cadre of clueless investors once drove the share price of this company to a 52-week high of $115. It has fallen sharply since then. But something tells me that sharper declines are in the offing in 2012 -- unless they aren't in the offing..

See, if I was a trader I wouldn't short a stock like this. When so much stupidity congregates in one place, all the laws of physics are turned upside down, among them: "What goes up must come down."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.