If you thought the days of sweet, fatty, delicious snacks like donuts were numbered thanks to the health craze … well … think again. Dunkin Brands (DNKN) has posted a solid 33% climb so far in 2013, while smaller rival Krispy Kreme Doughnuts (KKD) has more than doubled.
In fact, Janney Capital just upgraded KKD to “buy” from a previous rating of “neutral.” Investors were quick to gobble up and digest the optimism; Krispy Kreme stock has climbed more than 7% so far today. Today’s move makes its 52-week climb a mouth-watering 264%.
Surprised? Well, if you think Krispy Kreme just sells its original glazed doughnuts to folks living in the flyover states (like I did), think again (again). Instead, the company now offers a variety of fancy coffee and chilled beverages — taking a page out of Dunkin’s book, which took a page out of Starbucks‘ (SBUX) book — and is also increasing its international footprint at a rapid pace.
This summer, for example, it announced plans to add 60 new locations in South Korea over the next five years, and to remodel more than half of its existing 73. It also has locations in the U.S., Canada, Bahrain, China, Japan, Kuwait, Lebanon, Mexico, Saudi Arabia,Turkey and more.
That international reach has helped it post 12 straight quarters of sales growth — and helped it post the stock gains we just mentioned.
In fact, Janney actually has a price target of $26 — 13% upside from KKD’s current $23 pricetag. Of course, the median target from analysts is only $20 — 13% downside. That shows just how fast Krispy Kreme stock has run up, though. The stock broke through that median price target in mid-July, and hasn’t slowed down since.
It won’t be long before we get our first new clue as to whether this rocketing climb can keep going. Krispy Kreme is slated to report earnings on Aug. 29, and investors are expecting no less than 25% earnings growth.
That’s not unreasonable considering KKD earnings rose 43% year-over-year in Q1 and beat analyst estimates by three pennies, while sales and same-store sales both climbed around 11%. But the slightest sign of a slowdown could also send investors straight for the door.
The run-up in Krispy Kreme stock puts it at a price 32 times expected 2014 earnings — a bit expensive considering annual growth for the next five years is slated for 25%. Put another way, KKD sports a price/earnings-to-growth ratio of 1.36.
Either way, at this point KKD represents one of the most delicious investments you could have made this year — and not just because of its sugary offerings.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.
