by Alyssa Oursler | November 18, 2013 11:38 am
Anyone who had written Krispy Kreme (KKD) off as a fad (guilty) got a wake-up call this year.
And anyone who then thought KKD stock couldn’t keep its roaring start (guilty again) was also proven wrong.
Heading into Krispy Kreme’s second-quarter earnings report in September, I wrote that expectations were high and that KKD stock was frothy. So when Krispy Kreme stock sold off after reporting hot-but-not-hot-enough earnings growth, I was quick to say “I told you so,” calling KKD “a stock that has run too far, too fast.”
Well, KKD stock investors didn’t dwell on the disappointment for very long. After a quick selloff, Krispy Kreme stock has kept on climbing.
In fact, shares of KKD are up almost 40% from the post-earnings low.
Now, the story heading into third-quarter Krispy Kreme earnings is much the same. Expectations are high, and KKD stock is going for a quite the premium thanks to its sizzling run.
For Q3, KKD stock analysts expect earnings of 16 cents per share — that would represent 33% year-over-year growth and is a penny more than analysts were calling for a few months back. Revenue should tally $117.7 million, or nearly 10% improvement year-over-year.
Plus, Krispy Kreme stock now boasts a price tag of nearly $26 — around 34 times expected 2014 earnings vs. long-term earnings growth of just 25%.
While skepticism heading into report would seem natural given the high valuation and earnings bar for KKD, those features have become par for the course. Krispy Kreme has actually missed earnings in two of the past four quarters — however, those invested in Krispy Kreme stock haven’t seemed to mind. KKD is up roughly 175% since Jan. 1.
While KKD stock is obviously sizzling thanks to strong earnings growth, the question of how that earnings growth is happening is a valid one.
Krispy Kreme is a chain that most people know for its glazed doughnuts, and that most people associate with the flyover states. But really, KKD has been expanding both its product line and its footprint.
Yes, the company has been expanding heavily into fancy coffee and chilled beverages, a la Dunkin Brands (DNKN) and Starbucks (SBUX) — part of the reason traffic counts have been higher and same-store sales increased 10% in most recent quarter.
And it has been rushing to add domestic locations as well as international ones. Just take a look at recent announcements for KKD:
So the small-town roots of KKD are spreading, and that means the potential for big-time upside. While SBUX already seems to have set up shop on every corner and in every Safeway (SWY), Krispy Kreme still has room to stretch its legs.
KKD stock investors, keep an eye out: Krispy Kreme reports third-quarter earnings on Dec. 2.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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