Krispy Kreme's Way Too Rich for My Blood

Does Krispy Kreme(KKD Quote) have good doughnuts? Sure. Does it have the potential to be a nationally renowned franchise? Absolutely. But does that mean you should buy its stock? No way.

No matter how you bite it, Krispy Kreme is expensive. Consider that the company trades at 11.6 times book value and at more than 6.1 times sales. Meanwhile, McDonald's(MCD Quote), which has roughly 50 times the sales base and 151 times as many stores as Krispy Kreme, and which I think we all agree has had a pretty solid operating history, trades at just 3.7 times book value and 2.4 times sales.

To be fair, you could argue that Krispy Kreme should be trading at a premium to McDonald's because it's expected to grow at a much faster clip in the coming year. In fact, analysts figure that the company can expand its earnings per share by more than 37% over the next 12 months, while McDonald's will grow its earnings by only about 10.2%. But again, does this justify such a lofty valuation? I think not. ...