Cult Stocks: Krispy Kreme's Sweet Comeback

This post appeared earlier Thursday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

When the call went out for a special feature on cult stocks, I was the RealMoney contributor who asked, "What the heck is a cult stock?" A little slow on the uptake sometimes, I am. My first thought, on finding out what it was, was that no company says "cult stock" more than Harley Davidson(HOG). After all, have you ever known anyone to tattoo "McDonald's(MCD)", "Pfizer(PFE)", or "Microsoft(MSFT)" on a body part? Maybe you have. But, in any case, I don't want to write about motorcycles today, not when I can write about doughnuts.

And not just any doughnuts. Krispy Kreme Doughnuts(KKD) -- a cult classic that some folks evidently even use as hamburger buns. Really. Great doughnuts, however, don't necessarily translate into a great stock. The company went public back in 2000 at $21 per share ($5.50 split adjusted) amid much fanfare, opened at $32 and rose to $37 ($9.25 split adjusted) on the first day of trading. By December of 2001, the share price had quadrupled. After topping out in December of 2003 in the $49 range, it's been pretty much all downhill since, and this former high flyer now trades around $4.00, a veritable reverse ten bagger.

Name a bad business development, and it probably happened to Krispy Kreme. Over-expansion, ridiculous over-payment to acquire stores from franchisees, poor accounting practices and controls, restatements, bad management, class-action lawsuits, declining sales and disappearing profits ... the list goes on. The losses piled up, year after year until, all but forgotten, the stock bottomed at $1.08 in February of 2009, a shadow of its former self. Talk about the near destruction of a brand; If this is not already a business-school case study, it should be.

This stock went from growth darling to near oblivion. I, for one, had forgotten about it. Krispy Kreme's presence in the area I live all but disappeared, as the company closed stores and ended relationships with supermarket chains that carried the company's product.