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1-Star Stocks Poised to Plunge: Krispy Kreme?

Based on the aggregated intelligence of 170,000-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, 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 $599 million
Industry Restaurants
Trailing-12-Month Revenue $374.4 million

Chairman/CEO James Morgan

CFO Douglas Muir

Return on Equity (Average, Past 3 Years) 3.1%
Cash/Debt $24.7 million / $34.8 million

McDonald's (NYSE: MCD  )

Starbucks (Nasdaq: SBUX  )

Tim Hortons (NYSE: THI  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 50% of the 783 members who have rated Krispy Kreme believe the stock will underperform the S&P 500 going forward. These bears include All-Stars Chemdawg and TSIF, both of whom are ranked in the top 10% of our community.

Just last month, Chemdawg touched on Krispy Kreme as an unappetizing pick:

donuts are not really a big priority when the house is getting repoed and you haven't had a job in a few years ... and this is a one trick pony ... retail is in a bit of a bubble and the good earnings are unsustainable going forward ... and they have a P/E of over 50.

In fact, Krispy Kreme currently trades at a particularly lofty P/E of 80.6. That represents a clear premium to rivals McDonald's (17.4), Starbucks (25.5), and Tim Hortons (12.4).

CAPS All-Star TSIF warned Fools about getting too excited over the recent market-thumping quarter:

Krispy Kreme announced they had their highest profit in seven years at $0.13 per share and handily beat analysts estimates. I find it hard to believe, however that the earnings or the pop will be sticky moving forward. Krispy Kreme has been break even on store count opening and closing company owned stores and franchise stores at a fairly even rate. Last quarter they booked a loss and indicated that ingredient prices were rising and they would probably have to raise prices. ... Higher gas prices are reducing disposable income and reducing driving, both decreasing the potential store traffic, especially if prices rise. ...

Cash flow is decent and debt manageable, but I can't see this spike holding. Overall, a good report for Krispy Kreme, but investor loyalty will fade as volume returns to normal and the sugar rush is over.

What do you think about Krispy Kreme, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of McDonald's, Starbucks, and Tim Hortons. The Motley Fool owns shares of 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.

Read/Post Comments (2) | Recommend This Article (4)

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.

  • Report this Comment On May 27, 2011, at 7:43 PM, lenholliday wrote:

    Dear Sir, Let me make one thing clear. It is never wise to place your money against Jim Morgan who is the CEO of Krespy Kreme. I have known Jim Morgan for over 20 years. KKD is on the way up. If I had $10million to play with I'de put it all in KKD stock. I went to work as Branch Manager Of the Anderson, S.C. Interstate/Johnson Lane in Dec. 1192 and when I left In Dec.1999 I left rich because of our CEO JIM MORGAN. IJL stock went from $1.25 to $58 per share. How is that for a return on your money. KKD will do the same thing. Buy and hold and you will grow rich. Len Holliday

  • Report this Comment On May 28, 2011, at 11:07 AM, TSIF wrote:

    Mr. Holliday,

    I appreciate your comments. While there are certainly investors loyal to a company who lash back to negativity against it, you have made some excellent points. I would, however, suggest that you keep articles such as this one in context. Rightly, or wrongly, the majority of investing in today's climate is not done with a long term view. A suggestion that a company is ahead of or behind its valuation is generally of a short term nature.

    All company's have these inflection points as the market is not a perfect tool, especially in the short run. Any wise investor knows there are times to average in or average out or batton down the hatches for a truely long term outlook. One should never make a large investment at one time or competely in one equity or sector. Diversification, even in today's volitile market is key.

    There are few equities that can hold a 30% spike. Spikes such as this are driven by shorts, covering, computer trading, and speculation. While the CEO as captain of the ship plays a huge roll, he can only do so much at any given time.

    From Krispy Kreme's perspective, I would suggest watching it for a few quarters. One rarely goes from a loss to a record profit in a single quarter without further rolls of the ship. Commodity prices and economics are difficult to steer around.

    I do appreciate your comments about CEO Morgan and I will keep an eye on Krispy Kreme. I have no issue admitting when I am incorrect in my investment thesis, and this is how the majority of us on Motley Fool use the free service to learn and adapt. I have not in my several years history of watching major spikes and drops in a company's share price seen very many cases where the best time to invest is after a 30% pop, especially on a single earnings report.

    Best wishes to you and your investing, and again thank you for your input on CEO Morgan and your expression of faith in his abilities.


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Related Tickers

12/31/1969 7:00 PM
KKD $0.00 Down +0.00 +0.00%
Krispy Kreme Dough… CAPS Rating: **
MCD $110.57 Down +0.00 +0.00%
McDonald's CAPS Rating: ***
SBUX $53.59 Down +0.00 +0.00%
Starbucks CAPS Rating: ****
THI.DL $0.00 Down +0.00 +0.00%
Tim Hortons CAPS Rating: ***