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Why Green Mountain is the Ultimate Battleground Stock

Tuesday, 18 Oct 2011 | 2:00 PM ET

Green Mountain, for all of its growth, has been a battleground stock for several years.

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Then the stock steamrolled any bear in its way. As Rick Aristotle Munarriz of the Motley Fool notes in his “You’re wrong, David Einhorn” piece today, “The stock has soared 166 percent since Greenberg bashed Green Mountain's accounting practices 13 months ago—and that's including yesterday's drop.”

If there is one thing I’ve learned with some of these stories: The shorts are almost always early, but often right.

In his presentation Monday at the Value Investor Congress, David Einhorn of Greenlight Capital ticked off a list of reasons he would be leery of the company if he were an investor.

Two things stood out:

First, his suggestion that the company is engaged in questionable accounting.

Second, he questioned the $700 million-plus Green Mountain says it has plans in its upcoming fiscal year on cap spending. That’s more than double the year before.

Einhorn said that based on his research into the production side of the K-Cup industry—he can’t come up with numbers anywhere near that much to increase K-Cup production. At best, he said, maybe the company could spend $200 million—and that’s giving them the benefit of the doubt.

Green Mountain hasn’t responded to his comments, but in a report today attempting to refute Einhorn Janney Capital Markets analyst Mitchell Pinheiro says the spending makes perfect sense. “GMCR’s primary challenge has been to keep up with demand and it is building capacity…,” he says.

Maybe, which is what happens when two smart guys with the same set of books and access to the same information come up with different conclusions.

But just remember: The quarter that just ended on September 25 is the end of Green Mountain’s fiscal year. That makes it the company’s audited quarter, which is always a nail biter at companies in the crosshair of regulators. And unless you need a reminder: For more than a year Green Mountain has been the focus of an SEC investigation.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg and on Google+

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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