Individual investors expecting to get in on the ground floor of a Google-type growth play snatched up Dunkin' Brands'
True, the early days of trading in Dunkin' Brands, the company that owns Dunkin' Donuts and Baskin Robbins chains, offers an enticing opportunity to buy into a major company that's destined to grow. Dunkin' says it will more than double its number of stores over 20 years, and its franchise-focused strategy means it won't have to fork out much money to do that. Moreover, the company has already proven that its mixture of high-margin coffee and low-priced fun food fills up the coffers pretty well.
But successful growth stocks, even the ones that go on to make the most astronomical share price gains, are rarely made in the first few months of trading. Especially in the restaurant sector, where investors' over-enthusiasm tends to swell PEs. Just consider the early days of a few retail food companies known for their enviable returns that went public this millennium.
Peet's Coffee & Tea
OK, so Chipotle Mexican Grill
Still, it might be worth missing out on the highest possible gains to avoid getting sucked into another Krispy Kreme Doughnuts
The key here is, of course, the offering price. For value investors, the best IPOs are the ones in which the share price makes a somewhat straight line up for a long time after the first day. Getting that, however, is something of a crap shoot. While Dunkin' hired experts from every corner of Wall Street to set its $19 a share IPO price, they won't really know if they got it right until the shares trade for awhile. Sure, the best returns on Dunkin' Donuts may turn out to be for those who buy today. But they're just as likely to be for those who buy it a month or six or a year out.
So it's fine to relax for now. Have a donut.