The Sweet Spot in Krispy Kreme Stock Hasn't Arrived

NEW YORK (TheStreet) -- After market close Monday, Krispy Kreme (KKD) 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.

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