How Far Can Krispy Kreme Earnings Rise?

Krispy Kreme (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

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 (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 (GMCR.DL) 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 (SBUX 1.09%), 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.

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