How Far Can Krispy Kreme Earnings Rise?

Krispy Kreme (NYSE: KKD  ) will release its quarterly report on Thursday, and bullish investors have sent the stock soaring, with shares having more than tripled since last November. Yet despite the stock's trading at levels not seen since 2004, Krispy Kreme earnings, though growing, are high enough to make value investors worried about whether the company's shares are getting ahead of its fundamentals.

Years ago, many investors wrote off Krispy Kreme as a dead fad stock. Yet the company bounced back from its troubles, rediscovering its core offerings and seeking to get itself back on a growth track. Let's take an early look at what's been happening with Krispy Kreme over the past quarter and what we're likely to see in its report.

Stats on Krispy Kreme

Analyst EPS Estimate

$0.15

Change From Year-Ago EPS

25%

Revenue Estimate

$111.36 million

Change From Year-Ago Revenue

9.1%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How sweet will Krispy Kreme earnings be?
Analysts have gotten more optimistic in recent months about the prospects for Krispy Kreme earnings, adding a penny per share to their July quarter estimates and $0.06 to $0.07 per share to their projections for the current fiscal year and next year respectively. The stock has followed suit, continuing to climb and posting an increase of more than 75% just since late May.

Krispy Kreme's gains have come from growth that has consistently outpaced investor expectations. Three months ago, the company announced first-quarter results that sent shares soaring 17%, with same-store sales growth of 11.4% showing the success of the company's turnaround efforts and the restoration of the growth rates of its glory days.

Yet Krispy Kreme faces competition that has learned from the mistakes that Krispy Kreme made in its heyday. Dunkin' Brands (NASDAQ: DNKN  ) has realized that despite its similar doughnut emphasis, it needed to go beyond doughnuts to offer expanded menu options that appeal to health-conscious eaters. As a result, Dunkin' has stood up to giants in the coffee industry and with the help of a partnership with Green Mountain Coffee Roasters (NASDAQ: GMCR  ) has expanded its reach to include single-serve coffee offerings as well. Krispy Kreme hasn't the same level of high-profile success with its other menu offerings, but its arguably stronger brand has helped it with its expansion plans, which include plans to expand internationally into markets like Taiwan.

Still, one questionable move in the face of a soaring stock was Krispy Kreme's decision in July to buy back $50 million in stock. With shares fetching almost 30 times forward earnings, some skeptical investors think the company is throwing away good money on an overpriced stock. Even though the space is full of fairly high-valued stocks, with Starbucks (NASDAQ: SBUX  ) , Green Mountain, and Dunkin' all trading above 20 times forward estimates, it's unclear whether Krispy Kreme's growth prospects justify its even higher valuation.

In the Krispy Kreme earnings report, watch to see whether the company can show growth not only in doughnut sales but in other parts of its menu. Depending on its success in broadening its appeal, Krispy Kreme could easily see earnings rise much further in the years ahead.

Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the world's No. 1 growth-stock newsletter, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, with you! It's a special 100% free report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains, and click here for instant access to a whole new game plan of stock picks to help power your portfolio.

Click here to add Krispy Kreme to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2612739, ~/Articles/ArticleHandler.aspx, 12/20/2014 12:26:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement