Seems as though the doughnut maker is always coming up a bit short of expectations, as fellow Street.com columnist Richard Saintvilus pointed out Wednesday. On Tuesday, the stock fell nearly 15% after reporting in-line earnings, but lower than expected revenue, and lower earnings guidance for the year. The company also took a severe beating in the financial press. Shares closed Thursday at $16, down 16% for the year to date. Not sweet.
My vantage point and interpretation are a bit different than most. Comes with the territory as a value investor and part-time contrarian.
Krispy Kreme has a fabled past -- it was one of the great cult stocks after going public in 2000, 63 years after opening its first store. It was also a hot stock in its early years, rising to nearly $50 a share before the trouble started.
The trouble, in this case, was overexpansion, bad management and poor accounting. The gravy train stopped swiftly, and this was ultimately a $1 stock by 2009. The company lost money for five consecutive years between 2005 and 2009, was forced to close stores, and fell off investor's radar.
Count yours truly as one who'd forgotten the company was still public until I stumbled on it while doing some research in late 2009. By then it was under new management, had fewer stores, less debt and a nice amount of cash on the books. Not to mention resurging sales, a growing international presence, along with a healthy amount of owned real estate.
Krispy Kreme was now a value stock, in my view, and an extremely valuable brand with a very low price. An initial position was taken in early 2010, in the $4.50 range. I was one of the few fools writing about it at the time, but that was not to last.
In April of that year, the Krispy Kreme reported breakeven results for fiscal 2010, a monumental event for a company that nearly went under. Since then, in just four years, the company has increased total stores 47% to 855, and franchised stores 52%. There are now 595 international stores, and that is where much of the growth is coming from.
As investors have re-embraced the story over the past four years, and as the company has re-entered the mainstream, the stock has been volatile especially at earnings releases. That's not uncommon. When a company turns around as remarkably as Krispy Kreme has, renewed attention can bring high expectations. When those expectations are not met, the stock will suffer.
I never expected a straight-up, uninterupted rise in Krispy Kreme stock. In fact, at times over the past four years the stock has gotten ahead of itself. I've occasionally exited or reduced the position when it became too frothy.
It's not frothy now. Not trading at 18 times next year's consensus estimates. Not for a company that has a lot of room to expand around the globe. Not for a company that is an iconic brand yet has a market cap and enterprise value of just $1 billion.
Sure, the quarter may have disappointed some investors, but it's just one quarter. The Krispy Kreme story is still intact.
Finally, I don't buy the notion I heard after Krispy Kreme's latest earnings report that healthier eating in this country will result in the death of the doughnut. Hogwash.
The Krispy Kreme doughnut, like the company, will survive.
KKD data by YCharts
At the time of publication the author was long KKD.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.