Diedrich Coffee: A Web of Misrepresentations

Diedrich Coffee’s (DDRX) stock has climbed in a manner that would lead a sheer chartist to assume the company has discovered a cure for cancer or created a perpetual motion machine. From its 52-week low of $0.21, the stock is up nearly 14,000% with nary a pullback. While it could be argued that today’s markets are no different than a casino, DDRX is a lottery ticket that may have serious manipulation and misrepresentation claims levied against it in the future. I am short DDRX and believe that the stock is worth little more than $8.00 per share. Further, in the investing public’s interest, I am sending a letter detailing my concerns on DDRX to the SEC.

I’ll assume that most investors understand that DDRX, which gets the vast majority of its sales from Keurig K-cups, has ridden the Green Mountain (GMCR) coattails over the past year. I’ll assume that most investors are aware of the pending Starbucks (SBUX) and Peet’s (PEET) K-Cup launches, which will likely destroy Diedrich’s market position. What I will assume isn’t known by those foolish enough to touch DDRX stock is the factual misrepresentation of core financials and the other warning flags from management that we have uncovered.