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Trade-Ideas: Krispy Kreme Doughnuts (KKD) Is Today's "Dead Cat Bounce" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Krispy Kreme Doughnuts ( KKD) as a "dead cat bounce" (down big yesterday but up big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Krispy Kreme Doughnuts as such a stock due to the following factors:

  • KKD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $44.6 million.
  • KKD has traded 521,307 shares today.
  • KKD is up 3.8% today.
  • KKD was down 20.2% yesterday.

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More details on KKD:

Krispy Kreme Doughnuts, Inc., together with its subsidiaries, operates as a branded retailer and wholesaler of doughnuts, beverages, and treats and packaged sweets worldwide. It owns and franchises Krispy Kreme stores. KKD has a PE ratio of 59.9. Currently there are 4 analysts that rate Krispy Kreme Doughnuts a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Krispy Kreme Doughnuts has been 1.1 million shares per day over the past 30 days. Krispy Kreme Doughnuts has a market cap of $1.6 billion and is part of the services sector and leisure industry. The stock has a beta of 1.35 and a short float of 5.1% with 1.50 days to cover. Shares are up 161.7% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Krispy Kreme Doughnuts as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 0.7%. Since the same quarter one year prior, revenues rose by 10.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • KKD's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, KKD has a quick ratio of 1.96, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has slightly increased to $13.08 million or 3.53% when compared to the same quarter last year. In addition, KRISPY KREME DOUGHNUTS INC has also modestly surpassed the industry average cash flow growth rate of -1.57%.
  • Compared to its closing price of one year ago, KKD's share price has jumped by 183.03%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • KRISPY KREME DOUGHNUTS INC reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, KRISPY KREME DOUGHNUTS INC reported lower earnings of $0.29 versus $2.33 in the prior year. This year, the market expects an improvement in earnings ($0.63 versus $0.29).

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