Stay far away from Green Mountain Coffee Roasters, Cramer said Thursday, at least until after its next quarter.
As readers may remember, Green Mountain , maker of the Keurig single-cup coffee brewer, in late September announced a Securities and Exchange Commission inquiry into the company’s revenue-recognition policies and a $4.4 million accounting error. Cramer immediately put the stock in the “Sell Block,” something he always does for any company that reports an accounting irregularity. But on Thursday he took that “Mad Money” maxim one step further: Not only should investors sell companies with these problems, but they shouldn’t even consider buying their stocks again for at least two quarters.
Why the wait? Well, largely because investors never know how deep the accounting problem in fact goes. So the best play is to sit tight until all the facts are in and any risk is off the table.
Look at what happened with GMCR: The stock fell to $31 from $37 soon after the Sept. 28 announcement, and then dropped as low as the mid-$20s over the next month before bottoming and starting to recover.
On Nov. 19, Green Mountain restated its financials and told investors that the internal investigation was nearly finished, which pushed the stock up to nearly $36 from about $30. Then GMCR traded up to new highs over $37. Unfortunately for people who dove right back in, though, the company followed up with a disappointing fourth quarter on Dec. 9 that sent the stock back down 10 percent, to $33.81 from $37.42.
Cramer said there was a good reason for that bad Q4. Accounting irregularities often signal that a company’s growth isn’t as strong as most people thought, even if the accounting problem itself doesn’t seem to be that big a deal. And when it comes to Green Mountain, its once near proprietary business has turned commodity, and the competition is cutting into the company’s profits.
“Why don’t you go to Bed Bath & Beyond,” Cramer said, “you can see a half dozen other single-cup coffee brewers that compete with GMCR’s Keurig.”
This story isn’t necessarily over, either. As history shows us, things can get much worse.
Verifone , maker of point-of-sale hardware, fell 46 percent to $26 from $48 on Dec. 3, 2007, the day it announced an earnings restatement. The company failed to produce financial statements for fiscal 2007 until August 2008, and the next two quarters—in September and December—both disappointed. It wasn’t until PAY bottomed at $3 and change right before that second disappointing quarter that the stock was worth buying again. But regardless, investors still had to wait Cramer’s recommended two quarters from the time the company produced the necessary financials. Since then, Verifone has been steadily regaining its lost ground.
The lesson here is to wait one more quarter, Cramer said, “before we even consider whether to go back to Green Mountain again.”
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