Two weeks ago to the day was National Donut Day 2012, and doughnut chain Krispy Kreme Doughnuts (NYSE:KKD) drew the hungry masses in droves with its free donut offer that day. Now everyone can agree that Krispy Kremes are sinfully delicious, but are promotions like this a reward from a fundamentally healthy company, or a desperate gimmick designed to boost sales? Let’s find out.

Company Overview

 This year, Krispy Kreme is celebrating its 75th Anniversary as an American doughnut shop. Over the years, this company has introduced a wide range of interesting flavors, including a 20-calorie glazed wheat doughnut, New York Cheesecake, and even one made with Cheerwine soda. The company also sells a variety of coffee beverages, iced drink, smoothies and sundaes. Its products are sold in both stand-alone Krispy Kreme stores as well as grocery stores and gas stations; in 2011, the company brought in $362 million in total sales.

Industry Breakdown

 Krispy Kreme is a member of the highly competitive Restaurant industry. Out of 98 companies, Krispy Kreme ranks at no. 42 in terms of market capitalization. This company does stand out in terms of long-term growth rate, which is ranked at no. 3, and earnings growth (no. 6), but that is because the rest of the industry is doing so poorly in terms of profits.

Krispy Kreme’s main competitors are Dunkin’ Brands (NASDAQ:DNKN), Einstein Noah Restaurant (NASDAQ:BAGL) and Starbucks (NASDAQ:SBUX). Of these four companies, my Portfolio Grader tool rates BAGL an SBUX as A-rated buys while the other two companies fall behind.

From Russia With Love

 At the end of April, management announced an exciting expansion into one of the world’s leading emerging markets: Russia. Specifically, Krispy Kreme is teaming up with the Novikov Restaurant Group to build 40 shops over the next five years in Moscow. Since 2004, Krispy Kreme has been on a tear to increase its international reach. In addition to North American operations, Krispy Kreme stores operate in 19 other countries, including the U.K., Austrailia, Mexico, South Korea and Thailand.

Current Ratings

 Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For much of the past year, KKD has stayed firmly in buy territory. However lately the stock has sustained a signficant drop in buying pressure, so its Quantatitve Grade has slipped to a D-rating.

Meanwhile, Krispy Kreme does well in terms of its Fundamental Grade, which is B-rated. Currently, the company receives an A for its operating margin growth, earnings momentum and earnings surprises; its cash flow is B-rated. However, there is plenty of room for improvement in terms of sales and earnings growth, return on equity and analyst earnings revisions.

Bottom Line

As of today I consider KKD a D-rated sell. The company is doing well in terms of most of its fundamentals, but it is going to have to firm up its buying pressure if it wants to make its way onto my plate.

Recommendation: Sell

Sound Off: What do you think about KKD? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.