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Krispy Kreme Doughnuts' Second Act

NEW YORK (TheStreet) -- Back when the dot-com sector was collapsing in 2001, Krispy Kreme  (KKD - Get Report) was going in the opposite direction.

The stock took off from its 2000 IPO and split twice in 2001, hitting a high in 2003 of nearly $50 before traders woke up. By late 2005 the stock was trading for less than $5 a share, and during the 2008 crash it traded quietly in the $2 to $3 range.

Now it's back on the roller coaster.

After rising to more than $25 early last month, the stock has fallen to less than $20, after the company reported earnings that, while good, were below expectations because of one-time charges.

Those charges, a $1.7 million sale of leases and a $1.5 million lease termination agreement, involve a dispute with the former landlord at its commissary in Lorton, Va. But they went straight to the bottom line, turning an adjusted net income of $11.2 million, or 16 cents a share, into reported net income of $6.8 million, or 9 cents a share.

What all this proves is that Krispy Kreme is, once again, a momentum stock. Even at its current price you're talking about a price-to-earnings ratio of 61. Those doughnuts may be puffy, but I want some real cloud technology at that price.

Back during the last bubble, there was an assumption that Krispy Kreme could take its fried yeast doughnuts global, and that Japanese in particular might love a hot, fried, sugar-coated pillow as much as folks in Atlanta do.

Now the story is more of a domestic one, involving a franchise that remains weak in some states, such as New Jersey, Ohio, Pennsylvania and West Virginia, where it should have room to grow, and a packaged goods business that brings both its doughnuts and coffee into many grocery stores. (Full disclosure: I bribe my son into unpacking the car from Costco  (COST) runs by hiding a box of Krispy Kremes in the trunk.)

Krispy Kreme's cake doughnut competitor, Dunkin Brands (DNKN), has also done well for investors over the last five years, but its gains are only one-tenth those of Krispy Kreme. Dunkin Brands' market cap is also four times larger, at $5.17 billion.

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