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Green Mountain Coffee Roasters is considered a short sale candidate (a stock sold short makes money if the stock price declines). The business is growing quickly, but there are signs of potential problems. The case provides a realistic illustration of bullish versus bearish investors. Like in a mystery novel, there are spies, possible misrepresentation, and conflicting information here. Decision-making under uncertainty is explored — a factor professional investors must deal with every day.<br><br><br><br>Case discussion topics include risks in short selling, margin loan calculation, investor behaviour, stock valuation analysis, forecasting business growth potential, forecasting earnings reports, management incentives, actions taken by management to increase the stock price, aggressive accounting practices, assessing the business impact of a patent expiration, and the impact of a business growth rate on stock market valuation.

Green Mountain Coffee Roasters is considered as a short sale candidate. (A stock sold short makes money if the stock price declines.) This business is growing at a high rate, but there are signs of potential problems. This is a very real illustration of bullish investors versus bearish investors. Like a mystery novel, there are spies, possible misrepresentation and conflicting information. Decision-making under uncertainty is explored, a factor professional investors must deal with every day. Case discussion topics include risks in short selling, margin loan calculation, investor behavior, stock valuation analysis, forecasting business growth potential, forecasting earnings reports, management incentives, actions taken by management to increase stock price, aggressive accounting practices, assessing business impact of a patent expiration and the impact of business growth rate on stock market valuation.

Spreadsheet for product 9B09N016.

This case provides a means to illustrate enterprise valuation analysis questions such as: 1) Given a stock price, what is the implied value attributable to the operating business? 2) Given a valuation multiple for an operating business, what is the implied target stock price? In addition, the case 1) illustrates how arbitrage acts to enforce the law of one price and keep markets efficient 2) provides a model case to understand why stocks can become mispriced 3) shows application of a stub valuation analysis 4) provides an illustration of a common hedge fund strategy (long/short equity) 5) show how to calculate margin requirements for a portfolio containing both long and short positions 6) illustrates the effects of leverage and capital requirements on investment returns 7) provides an example framework to calculate risk in a complex investment position.

This case provides a means to illustrate enterprise valuation analysis questions such as: 1) Given a stock price, what is the implied value attributable to the operating business? 2) Given a valuation multiple for an operating business, what is the implied target stock price? In addition, the case 1) illustrates how arbitrage acts to enforce the law of one price and keep markets efficient 2) provides a model case to understand why stocks can become mispriced 3) shows application of a "stub" valuation analysis 4) provides an illustration of a common hedge fund strategy (long/short equity) 5) show how to calculate margin requirements for a portfolio containing both long and short positions 6) illustrates the effects of leverage and capital requirements on investment returns 7) provides an example framework to calculate risk in a complex investment position.