NEW YORK (TheStreet) -- Krispy Kreme (KKD) , due to report third-quarter financial results Tuesday, is not an easy stock to stomach. Part of the reason is due to rising competition in the doughnut and coffee trade from larger rivals Starbucks (SBUX) and Dunkin Brands (DNKN) .
At around $20, the stock is up 5% for the year to date compared with the nearly 12% rise in the S&P 500. Still, Krispy Kreme has rewarded patient shareholders with gains of 27.92% since we recommended the stock as a buy back in August.
Has the easy money been made? Yes. Should you buy shares anyway? Yes, and here's why.
As the Google Finance chart below shows, the stock has been on a roller-coaster ride in 2014.
The highest analyst 12-month target on Krispy Kreme is $27, according to CNN Money. This suggests gains of 30.94%. Even the median 12-month target of $24.50 can yield gains of 18.82%. Of course, the company has to execute its business in order to meet those price targets.
The company's past revenue struggles appear to be over. CEO Anthony Thompson, who started June 1, has a strong track record as a detail-oriented manager. Thompson, former president of Papa John's International (PZZA) , is no stranger to competition. After years of fighting larger rivals Dominos (DPZ) and Pizza Hut, he knows it will be a battle to take on Starbucks and Dunkin.
Last year's severe winter storms that hurt restaurant traffic were much to blame for Krispy Kreme's revenue struggles. Assuming the company can meet or exceed its full-year net income target of $51 million, investors on the sidelines should place a bet here because Krispy Kreme is looking at much better year-over-year comparisons heading into next year.
Finally, on a forward-looking basis, Krispy Kreme currently trades comparable to both Dunkin Brands and Starbucks in terms of earnings estimates of 72 cents per share, according to CNN Money. Krispy Kreme's forward price to earnings ratio of 28 falls in line with Starbuck's forward P/E of 26.7 and Dunkin's forward P/E of 27.06.
At the time of publication, the author held no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates KRISPY KREME DOUGHNUTS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate KRISPY KREME DOUGHNUTS INC (KKD) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company shows low profit margins."
You can view the full analysis from the report here: KKD Ratings Report