Whoa! What Just Happened to My Stock?

Resist the urge to high-five everyone in the cubicles next to you. Your stock may have just strapped on a rocket pack and taken off for the moon, but smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating (out of 5)

Friday's Change

Krispy Kreme Doughnuts (NYSE: KKD  ) * 25.8%
China Fire & Security Group (Nasdaq: CFSG  ) *** 15.6%
ClickSoftware Technologies (Nasdaq: CKSW  ) ***** 9.0%

Continued concerns over Europe's economic health caused stocks to tumble 130 points yesterday, or 1.1%, so stocks that went significantly higher are pretty big deals.

A tasty opportunity
Even on a down day like this, a good earnings report can still trump bad news elsewhere. For Krispy Kreme Doughnuts, it took its best quarterly earnings report in seven years to get its stock to surge ahead. Revenues jumped 14% and profits more than doubled as the doughnut maker was able to pass along much of the costs associated with rising commodities to keep a step ahead.

Higher commodity and raw materials had weighed heavily on Krispy Kreme's fourth-quarter results, sending its shares down 21% on the realization it was going to have to pass along those expenses to customers. While they're going to be a worry for the sweet treat shop for the rest of the year, customers apparently didn't mind paying more for fresh, hot, glazed doughnuts. It also marked its 10th straight quarter of positive comps.

Fellow baker Flowers Foods (NYSE: FLO  ) was also able to report better quarterly results last week by passing along the higher costs it experienced. It is buying Tasty Baking, the maker of Tastykakes, and expects earnings per share to grow between 5% and 10% this year.

There was something ominous when the paragon of deep discounting Wal-Mart (NYSE: WMT  ) warned in March that food price inflation was going to occur rapidly. They predicted all retailers across the board would be raising prices to contend with the higher costs they're paying, and as these results come in we're witnessing the result.

CAPS All-Star member TSIF isn't convinced on the viability of Krispy Kreme's effort as the "sugar rush" wears off.

There is little economic reason for those with a sweet tooth to be increasing thier purchases. Higher gas prices are reducing disposable income and reducing driving, both decreasing the potential store traffic, especially if prices rise.

Snack on the other thoughts expressed on the Krispy Kreme Doughnuts CAPS page.

Not just smoke and mirrors
Industrial fire safety systems maker China Fire & Security has been threatening to go private for a while. Unlike Harbin Electric (Nasdaq: HRBN  ) and China Security & Surveillance (NYSE: CSR  ) , whose CEOs have said they want to take over their companies, China Fire intimated it had received an unsolicited bid from a private equity company.

That company was revealed on Friday to be Bain Capital, which offered to buy the fire and safety company for $9 a share, or a 23% premium to where the stock closed. China Security's CEO has offered a 58% premium to its shareholders.

CAPS members had been fairly bullish about China Fire's ability to beat the market, with 97% of the 1,866 rating the company giving it a thumbs-up. Fire away on China Fire & Security's CAPS page.

Making a connection
Wow. Just the news that ClickSoftware Technologies' CEO was going to appear on Jim Cramer's TV show was enough to excite investors. At least that was the only news of the day relevant to the workforce productivity optimization company and the Twitter feed announcing it closely coincides with the jump. But perhaps coming ahead of its Analyst Day presentation today, it gave bulls another reason to feel good that the stock would continue its climb afterward, too.

The stock is trading at its highest levels ever, and CAPS All-Stars have been unanimous in their belief it would beat the broad market averages. Some members like mdickson99 seem to have a knack for picking the right entry point: "Just added some as a starter, then financials come out and they introduce a dividend. nice kicker to an already solid balance sheet."

But spiking on such ephemeral reasons is hardly confidence building that it will stick and Cramer said investors ought to keep an eye on it to wait for a better buy-in price. But you can stay on top of the company's developments by adding ClickSoftware to the Fool's free portfolio tracker.

Going into orbit
That's why it pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock's headed for re-entry, or off to infinity and beyond.

The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Flowers Foods and Wal-Mart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here.


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  • Report this Comment On June 01, 2011, at 3:48 AM, GraceAlone wrote:

    You wrote: "China Security's CEO has offered a 58% premium to its shareholders."

    I'd be delighted to sell my CSR stocks for that price. How do I go about doing it?

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