In February, I compared coffee juggernaut Starbucks (SBUX 0.80%) to donut king Dunkin' Brands, concluding Starbucks was the better bet. But how does Starbucks compare to Krispy Kreme (KKD)?
Krispy Kreme's original glazed doughnut. Image source: Krispy Kreme.
Each company has mastered its craft: Starbucks its coffee, and Krispy Kreme its doughnuts. And both companies are actively expanding their menus and branded-retail offerings into new areas. But which companies' stock is a better buy?
|
Metric |
Starbucks |
Krispy Kreme |
|---|---|---|
|
Market capitalization |
$81 billion |
$1.3 billion |
|
Trailing-12-month revenue growth (YOY) |
13.9% |
4.3% |
|
Trailing-12-month EPS growth (YOY) |
(0.4%) |
4.3% |
|
Price-to-earnings |
32.9 |
44.8 |
|
Price-to-sales |
4 |
2.5 |
Data source: Reuters.
Growth
Starbucks is clearly the faster-growing company of the two. Its trailing-12-month revenue is up about 14%. This compares to Krispy Kreme's less-impressive rise in revenue of about 4% during the same period.
Both companies' rising sales are at least in part because of growing store counts. Though this driver is more significant for Krispy Kreme than it is for Starbucks. Krispy Kreme's systemwide store count rose 13% in its most recent quarter compared to the year-ago quarter. In the same period, Starbucks' store count rose about 8%.
One area where Starbucks really stands out from Krispy Kreme when it comes to growth is the important same-store sales metric. Starbucks' global comparable store sales increased 6% during the coffee giant's most recent quarter, driven by a 4% increase in tickets and a 2% increase in traffic. Meanwhile, Krispy Kreme's domestic same store sales rose just 0.7%, comprised of a 0.7% decrease at company-owned stores and a 1.6% increase at domestic franchise stores. And Krispy Kreme's international same-store sales declined 7.3% in constant currency.
Image source: The Motley Fool.
Even when it comes to growing EPS, Starbucks' recent ability to deliver profit growth has actually surpassed Krispy Kreme, despite Starbucks' lower trailing-12-month growth. Starbucks' EPS increased 18% in its most recent quarter while Krispy Kreme's adjusted EPS rose just 4.2% during the same period.
When it comes to growth, Starbucks is looking better than Krispy Kreme.
Valuation
For investors to buy into Starbucks' impressive growth story, however, they will have to pay a premium price. While its lower price-to-earnings ratio of about 33 compared to Krispy Kreme's price-to-earnings ratio of about 45 may initially lead some investors to conclude that Starbucks clearly trades with a more conservative valuation, this would be a mistake. The two stocks' price-to-sales ratios tell a different story. Starbucks' price-to-sales ratio of 4, compared to Krispy Kreme's of 2.5, clearly shows how investors have priced Starbucks' for both continued industry dominance and growth. Starbucks' price-to-sales ratio of about 4 is significantly higher than the industry average price-to-sales ratio of 2.4, demonstrating how investors are willing to pay a premium for the stock.
Despite Starbucks' arguably pricier valuation, the coffee company's much healthier -- and probably more sustainable -- growth story better justifies its stock price than Krispy Kreme's less certain future. When it comes to my portfolio, I'd opt for Starbucks' caffeinated buzz over Krispy Kreme's way-too-tempting glazed doughnuts.
