1-Star Stocks Poised to Plunge: Dunkin' Brands?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, coffee shop operator Dunkin' Brands Group (Nasdaq: DNKN  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Dunkin's business and see what CAPS investors are saying about the stock right now.

Dunkinfacts

   
Headquarters (founded) Canton, Mass. (2004)
Market Cap $3.6 billion
Industry Restaurants
Trailing-12-Month Revenue $656.8 million
Management CEO Nigel Travis (since January 2009)
CFO Paul Carbone (since June 2012)
Trailing-12-Month Return on Equity 11.6%
Cash/Debt $218.7 million / $1.5 billion
Dividend Yield 2.0%
Competitors McDonald's
Starbucks
Yum! Brands

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 40% of the 247 members who have rated Dunkin' believe the stock will underperform the S&P 500 going forward.

Just yesterday, one of those bears, TMFHarleyQuinn, showed skepticism over management's business strategy:

Though the company has great expansion plans and many exciting news announcements, there is an underlying and fundamental issue with its structure as an "Asset - Light" business . The company has almost $2B in debt, backed by an overinflated valuation of its Trade Name. Though this is a company that makes its money through franchise and licensing agreements, hence lending to the idea of an asset-light strategy, backing up a substantial amount of debt with an Intangible Asset (Trade Names, etc.) is a very risky move. I will be curious to see what happens in the next 2-3 years with all of the expansions, but I think that in the end the company will have to come up with a new strategy, which could create investor-averse conditions.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of McDonald's and Starbucks. Motley Fool newsletter services have recommended buying shares of McDonald's and Starbucks, as well as writing covered calls on Starbucks. 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 Fool's disclosure policy always gets a perfect score.


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