Bridgepoint Gets Detention and Green Mountain's Down the Cliff

NEW YORK (TheStreet) -- Two notable stocks under pressure Friday include Bridgepoint Education (BPI) and Green Mountain Coffee Roasters (GMCR).

Investor fear of looming declines in earnings drove lows in shares down 26% and 10%, respectively, from the previous closing price.

I recently wrote about Bridgepoint and the failing of accreditation in Will Bridgepoint Be Held Back a Year?.

Shares in Bridgepoint would normally begin rebuilding value today, but it didn't happen. Just as management and investors thought it could not get worse, Bridgepoint received a pop quiz.

Bridgepoint owns Ashford University in Iowa. Ashford received accreditation from the Higher Learning Commission, or HLC, of the North Central Association of Schools and Colleges.

Ashford also is an online school and is moving towards greater use of the online delivery model. Part of the moving towards online delivery includes receiving accreditation from the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges, or WASC.

Unfortunately, Ashford's request for accreditation from WASC was declined, causing Bridgepoint's shares to crash from $21.50 to Thursday's closing price of $12.97.

On Thursday Ashford received a letter from the HLC it has now put Ashford into a special "monitoring status." It sounds a lot like double-secret probation to me.

Apparently it sounds a lot like double-secret probation to investors as well because the company has lost a quarter of its value overnight. Ashford has until Aug. 10 to create a report, and submit it to the HLC demonstrating how marvelous everything is and demonstrate all is well.

Hopefully, someone at Ashford knows how to add scrolling text and pictures to PowerPoint.

The HLC will conduct an Advisory Visit within 60 days of the Commission's receipt of its report. Subsequently, at its meeting in February 2013, the HLC Board of Trustees will examine all the facts and decide what action if any to take.

While I have followed Corinthian Colleges ( COCO) and the for-profit education space for several years now, this one is admittedly new to me. That said, the selloff does not pass the smell test other than the large short interest.

Rumors of Corinthian's death have been exaggerated several times during the past couple of years. Corinthian also has a large and well-known group of traders shorting the stock.

Short-sellers are the smart money. Bridgepoint has one out of every two shares borrowed and shorted. That is a massive amount of money betting the company is not executing well. To go against $250 million in short selling value (was higher when they shorted) means one has to believe they know more than the counter-party.

At this point, I believe the shorts have outlasted their welcome, and unless they believe the entire company is about to implode, they will have to exit shortly or risk a massive squeeze.

Friday, I sold July $10 put options to capture the sky high premiums offered. I intend to hold through the weekend.

Green Mountain Coffee Roasters (GMCR).

Green Mountain Coffee Roasters engages in the production and marketing of award-winning coffees, innovative brewing technology and trades an average of 5.4 million shares per day with a market cap of $3.3 billion.

Green Mountain fell off a cliff on Friday after analyst Stifel Nicolaus cut Green Mountain's fiscal 2013 earnings estimate from $2.27 to $1.80 a share. The mean 2012 fiscal year estimate is $2.37 per share, resulting in a forward price-to-earnings multiple of nine.

Stifel analyst Mark Astrachan also estimated further declines in profit for Green Mountain. TheStreet's Gregg Greenberg nailed it with GMCR about three weeks ago in The Five Dumbest Things on Wall Street This Week: June 15. If you are not following Gregg Greenberg, now you know why you need to.

Analyst Astrachan estimates $1.64 for Green Mountain earnings during fiscal year 2014. Sales and profit for Green Mountain's K-Cups (single-serve cups for its Keurig coffee makers) is experiencing fierce competition and tightening of margins resulting from stepped up marketing efforts.

Shareholders have not been rewarded for their patience. Shares have fallen 76% in the last year, and the average analyst target price for GMCR is $45.67. TheStreet'sBret Jensen called GMCR a short more than a month ago in Even the Losers.

On one hand, the company has rising revenue year-over-year of $1.36 billion last fiscal year compared to $803.04 million in the previous year. Also in favor of the company is the bottom line. Green Mountain has rising earnings year-over-year of $79.50 million last fiscal year compared to $54.43 million in the previous year.

On the other hand, the share price is clearly transitioning from the upper left of the chart to the bottom right. The moving averages are all downward trending and are above the price. The chart simply doesn't get much more bearish than it is.

Although, Green Mountain has sold off so quickly, it's also now technically oversold slightly (not enough for me to gain an interest in fading the downward pressure).

Short-sellers have climbed this mountain in a big way. Over 17 percent of Green Mountain's float is short. Betting against short-sellers is generally a losing proposition, and Green Mountain demonstrates why.

If you're considering taking a sip of Green Mountain stock, perhaps let the shares come in more so you don't get burned. Green Mountain is one hot cup of Joe right now.

At the time of publication the author was long Bridgepoint via short July $10 put options entered on July 13.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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