This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Sweet Spot in Krispy Kreme Stock Hasn't Arrived

NEW YORK (TheStreet) -- After market close Monday, Krispy Kreme (KKD - Get Report) will report financial results for its fiscal first quarter.

With the stock closing Friday at $18.84, down more than 2% year to date, investors are starving for some sweet news. But with competition brewing from Starbucks (SBUX) and Dunkin' Brands (DNKN) investors will likely to disappointed.

Shares of Krispy Kreme were trading at $19 Monday morning, up 16 cents.

Wall Street analysts on average are estimating first-quarter earnings of 23 cents a share on revenue of $126.7 million. That translates into 15% earnings growth and 5% revenue growth. For the full year, analysts expect earnings of 78 cents a share on revenue of $496.8 million.

Despite the expected earnings growth, the stock has been stagnant. The reason is simple: The stock is expensive. It has risen from a low of $7 in October 2012 and now trades at a  price-to-earnings ratio of 39.

Krispy Kreme is trading at a P/E that is 10 points above the industry average and six points higher than Dunkin' Brands, even though in its fiscal fourth quarter ended Feb. 2 Krispy Kreme had profit margins that were only one-quarter those of Dunkin'.

Meanwhile, Krispy Kreme is moving beyond just doughnuts. It is selling premium coffee and smoothies to spur same-store sales growth. Smaller store formats have helped, as well, boosting profit margins. But with a P/E ratio close to 40, Krispy Kreme needs more to justify its stock price.

The competition for breakfast is fierce. McDonald's (MCD) has stepped up its game in the coffee and latte category. What's more, Yum! Brands (YUM), which introduced Taco Bell's breakfast burrito last month, has other menu items heating up. Both McDonald's and Yum! offer cheaper shares than Krispy Kreme does with higher dividend yields.

With Krispy Kreme shares still slightly down to flat in 2014, investors are speaking with their wallets. The stock offers little value at this level.

>>Read More: Krispy Kreme, Three Others Are Poised for More Volatility

>>Read More: Bubble? Correction? Shut Up, Chicken Little, It's a Consolidation

>>Read More: 10 Stocks Legendary Value Investor Benjamin Graham Would Buy Now

At the time of publication, the author held no position in any of the stocks mentioned.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
KKD $17.54 -3.30%
AAPL $125.85 -2.20%
FB $77.62 -1.50%
GOOG $531.81 -1.70%
TSLA $233.09 1.10%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs