New Short Position: BAGL

I mentioned this in a previous comment thread, but I shorted a few shares of Einstein Noah Restaurant Group (Nasdaq: BAGL) earlier today at $13.78. This company has an Altman Z"-Score¹ of -3.2. A score below 1.1 suggests a company is at risk of bankruptcy within 1 to 2 years. It wouldn't be the first time an Einstein Bagels went bankrupt; a previous iteration of Einstein/Noah Bagels went bankrupt nine years ago. Insiders have been selling BAGL this year. The company also has negative working capital, over $117 million in total debt, less than $4 million in cash, and it's had a big run-up this year that doesn't seem to be justified by fundamentals.

On the other hand, David Einhorn, one of The Guru Five, is the largest investor in BAGL², so bear that in mind. For my part though, I'm not going to let a guru's ownership of a stock keep me from shorting it. I did that last year, when I was bearish on USG, but didn't short it because Warren Buffett owned it. These guys put their pants on one leg at a time like the rest of us, and they often have different considerations than the rest of us do with these sorts of positions.


¹Z"-Score is the designation for the modified, four-term version of the model recommended for publicly-traded (non-financial) non-manufacturing companies.

²Einhorn appears to have acquired his stake when he helped recapitalize the company after its bankruptcy, so his average cost here is probably very low. I don't have the energy to look up the exact figures, but feel free to do so yourself if the spirit moves you.