1-Star Stocks Poised to Plunge: Krispy Kreme?

Based on the aggregated intelligence of 135,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, doughnut specialist Krispy Kreme Doughnuts (NYSE: KKD  ) has received the dreaded one-star ranking.

With that in mind -- and to mark National Doughnut Day -- let's take a closer look at Krispy Kreme's business, and see what CAPS investors are saying about the stock right now.

Krispy Kreme facts

Headquarters (founded)

Winston-Salem, N.C. (1937)

Market Cap

$264 million

Industry

Restaurants

TTM Revenue

$373.7 million

Management

CEO James Morgan (since 2008)
CFO Douglas Muir (since 2007)

Return on Equity (average, last three years)

(50.3%)

3-Month Return

240%

Competitors

Starbucks (Nasdaq: SBUX  )
Tim Hortons (NYSE: THI  )

CAPS members bearish on KKD also bearish on

Ford Motor (NYSE: F  )

CAPS members bullish on KKD also bullish on

Apple (Nasdaq: AAPL  )
Microsoft (Nasdaq: MSFT  )
Google (Nasdaq: GOOG  )

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.

Over on CAPS, 378 of the 714 members who have rated Krispy Kreme -- some 53% -- believe the stock will underperform the S&P 500 going forward. These bears include All-Stars JakilaTheHun and Jognils, both of whom are ranked in the top 5% of our community.

Last month, JakilaTheHun listed four reasons why investors would get Kremed:

(1) Their high debt in a deleveraging period
(2) Negative earnings; miniscule cash flows
(3) Rapidly declining revenues
(4) National trend toward eating healthier

In a pitch from late April, Jognils poked an even bigger doughnut hole in the bull case:

Why the enthusiasm all of a sudden? [Krispy Kreme] doesn't have the earnings to back up its price even at $3.26. Negative profit margins, below industry par in almost every area (efficiency, profitability, growth, etc.)

Seriously, take a look at their growth rate graphs and tell me why in the world I would want to own this stock except as a speculative short term bet. Would you want to own a company that has a -10.4% average revenue growth rate over the past 5 years...?

What do you think about Krispy Kreme, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 135,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Starbucks and Apple are Motley Fool Stock Advisor picks. Starbucks is also an Inside Value choice, as is Microsoft. Tim Hortons is a Global Gains selection, and Google is a Rule Breakers recommendation. The Fool owns shares of Starbucks. The Fool's disclosure policy will not apologize for taking the last cruller.


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