The last week of July was arguably the busiest week for IPO offerings since November 2007. It seems investors let their stomachs do the walking, as Dunkin’ Brands (NASDAQ:DNKN), Teavana Holdings (NYSE:TEA) and Chef’s Warehouse (NASDAQ:CHEF) all went public, averaging a whopping 42.3% first-day return. It’s mind-boggling when you consider the markets are flat for the year. Who in their right minds is buying this stuff? Not me, that’s for sure.

Especially puzzling is Dunkin’ Brands, which hasn’t been a growth story for several years, yet investors were willing to plunk down $19 per share for a business with excessive debt and marginal possibilities for growth. If you were lucky enough to have gotten shares at $19, I hope you’ve sold because in 12 to 24 months, Dunkin’s stock will be trading well below the offering price. Here’s why:

Valuation

A lot’s been bandied about in the media regarding Dunkin’s IPO valuation. At the IPO price of $19, the market gave it an enterprise value of $3.7 billion. A week later, thanks to its 46.6% first-day pop, that number is more like $4.6 billion. That’s 16 times EBITDA. McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) have multiples of 10.9 and 13.6, respectively. Dunkin is in the ballpark until you consider that its debt level when compared to EBITDA is four times McDonald’s and 20 times Starbucks. It’s not even close to being in the same league.

But forget traditional valuation metrics for a moment. I’d like to look at the current value from a different perspective — a historical one. J. Lyons & Company bought Baskin-Robbins for $45.5 million in 1973. Allied Breweries subsequently acquired Lyons in 1978, then in 1990, the merged firm bought Dunkin’ Donuts for $323 million. Factoring in inflation, the two companies sold for $706 million in 2006 dollars. I use the year 2006 because that is when Bain Capital, The Carlyle Group and Thomas H. Lee Partners paid $2.4 billion to acquire the iconic brands.

Is it possible that its enterprise value could grow from $706 million in 1990 to $4.6 billion today, given its earnings history? To do so, its enterprise value would have to increase 8.9% annually for 22 consecutive years. Keep in mind the S&P 500 returned 6.2% annually in the same period. I’m skeptical, and you should be, too.

Second-quarter results

Let’s assume for one second that Dunkin’s enterprise value did grow 9% annually during the past two decades. If that is indeed so, its second-quarter earnings report is nothing short of horrendous. You don’t grow a business at that rate for that long without delivering exceptional results every quarter. Sure, revenues increased 4.4% to $157 million, but net profits dropped 3.5% to $24.7 million. That’s hardly bedazzling.

Worse is the fact its same-store sales at U.S. Dunkin’ outlets, the supposed growth driver, increased 3.8%, less than half what Starbucks did in the same three-month period. And don’t get me started about Baskin-Robbins. Have you been in one of their outlets lately? Save yourself the misery and head to the local gelato store. That business is on life support.

The Three Amigos

It all makes sense when you consider who the sponsors of the IPO are. Private equity’s sole purpose is to make money for its investors. You’ve heard the story before. They buy a company for $2.4 billion, use as little of their own money as possible (in this case, $800 million) pay themselves lavish dividends of $590 million prior to the IPO and then, in the immortal words of Randolph Duke, “Sell, Sell, Sell.”

Have they improved the business? Not on your life. You can be sure that the debt, while it was owned by Allied-Lyons, was negligible, and now it’s $1.5 billion. In the five years they’ve owned Dunkin’ Brands, same-store sales have increased 1.1% annually. In the five years prior to their takeover, the average was 5.9%. While they’ll argue they bought the company at the worst possible time, I’d argue it wasn’t a problem of timing but rather the price paid, fueled by easily obtained debt securitization.

The bottom line? You don’t have to be a rocket scientist to know Dunkin’ Brands’ stock is a ticking time bomb. Own with extreme caution.