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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 - Get Report). After all, have you ever known anyone to tattoo "McDonald's (MCD - Get Report)", "Pfizer (PFE - Get Report)", or "Microsoft (MSFT - Get Report)" 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 - Get Report) -- 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.
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HOG $46.21 -1.20%
MCD $129.28 -0.04%
KKD $16.82 -0.65%
MSFT $49.94 0.14%
PFE $33.56 0.48%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

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