Krispy Gets Kremed... Again

NEW YORK ( TheStreet) -- Following its third-quarter earnings release late Monday, Krispy Kreme ( KKD) suffered a 14% haircut in after-hours trading. That was in addition to a 3% pullback during regular trading. It all added up to a rough day for the doughnut maker, as investors digested the earnings release and weren't satisfied.

The numbers were actually not bad -- revenue rose 7% to $114.2 million,  in line with the consensus estimate. Earnings of 16 cents per share were a penny ahead of the consensus. But after a 167% run by shares over the past year, investors were looking for more and didn't get it. They were probably dismayed by the company's earnings estimate for 2015 of 71 cents to 76 cents a share, below analysts' previous estimate of 77 cents.

Yesterday's action was deja vu all over again as shares suffered a similar fate following the company's second-quarter earnings report in August. An earnings miss of 2 cents sent shares down 15% on Aug. 30, but the stock recovered all of that lost ground over the subsequent five weeks, and then rallied further to a nine-year high.

During the past year, there has rarely been a dull moment following a Krispy Kreme earnings release. Following the first-quarter release in May, which contained better-than-expected results, shares jumped more than 21%. And following last year's third-quarter release, shares rose 23%.

And so it goes with a company that had been all but forgotten just a few years ago -- and appears to be making the most of its second chance at life after nearly imploding. This rebirth, of course, comes with a price, especially once investors have re-embraced the story, which has sent shares up more than 300% in the past 16 months and 2,000% in the past five years. It is difficult to continually exceed ever-growing expectations, and the price for not doing so is very high.

KKD Chart KKD data by YCharts

The balance sheet remains strong. The company ended the latest quarter with $67 million in cash and less than $2 million in debt. Shares trade for about 30 times the 2015 consensus estimate, a number that would typically make this value investor cringe. However, I continue to see great value in this brand and consider its current enterprise value of about $1.3 billion (based on yesterday's after hours closing price), to be a rather small price tag for an iconic brand that is back in growth mode.

Don't get me wrong, however; this stock has been and will likely continue to be volatile, as some investors lock in their gains. The easy money has already been made, and value created from here will likely not happen quickly. Further progress depends on Krispy Kreme's international growth strategy, which calls for 900 international franchised stores by 2017, up from the current 563.

I give Krispy Kreme a great deal of credit; the turnaround has been amazing to watch and participate in.

At the time of publication, Heller was long Krispy Kreme.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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