“Creating doughnut experiences.” That’s what Krispy Kreme (NASDAQ:DNUT) purports to do in the company’s prospectus. In fact, it looks as if DNUT stock will enjoy the sweet taste of profits in 2021.
So far, the results haven’t been palatable.
We’ll delve into the details in a moment, but suffice it to say that Krispy Kreme’s second initial public offering (IPO) hasn’t been a resounding success.
Yes, you read that correctly: 2021 marked the company’s second introduction to the trading public. Perhaps Krispy Kreme wanted/needed a capital infusion, and as we’ll see, the company certainly succeeded in that endeavor.
Believe me, this isn’t a perfect investment by any means. Nevertheless, I invite open-minded traders to consider a very small long position in Krispy Kreme as America’s penchant for unhealthy foods isn’t likely to wane anytime soon.
A Closer Look at DNUT Stock
July 1 marked Krispy Kreme’s second debut as a publicly investable company as DNUT stock started trading at $16.30. This already represented a discount, since the previously marketed price range was $21 to $24, while the IPO price was set at $17.
Interestingly, Krispy Kreme also went public 21 years ago. This was poorly timed, though, since the dot-com bubble was bursting.
Consequently, in a deal valued at $1.35 billion, JAB Holding – the Luxembourg-based conglomerate which owns Krispy Kreme – took the doughnut maker private in 2016.
Was the second time a charm? The 2021 debut started off reasonably well, with DNUT stock trading as low as $15.50 but closing at $21.
That, unfortunately, turned out to be the peak. The share price tumbled during the following weeks, settling at just above $15, which is where it stands now.
And here’s a kick in the gut: on Aug. 7, Yahoo! Finance stated that Krispy Kreme’s earnings per share, on a trailing 12-month basis, was -$791.03.
That’s a nasty number, assuming it’s accurate.
A Big Chunk
Krispy Kreme reportedly took in $500 million as a result of the company’s recent share offering.
Therefore, while DNUT stockholders might be disappointed, at least the company should have benefited from the 2021 IPO.
In the words of InvestorPlace contributor Mark R. Hake, “Going public helped the company pay off a big chunk of debt.”
Hake, the human calculator, estimates that Krispy Kreme’s recent IPO will reduce the company’s outstanding debt by roughly 43%, from $1.15 billion.
So, that’s good news at least. On the other hand, Hake also sets DNUT’s true value at $9.65 per share.
I won’t try to recreate his argument here, but $9.65 actually seems like a reasonable buy-in price.
After all, Krispy Kreme still has a boatload of debt to pay off, and the stock’s trajectory is decidedly to the downside.
Wagering on Bad Habits
So far, I’ve painted a bleak picture for Krispy Kreme, and frankly, I wouldn’t blame anyone for waiting until DNUT stock crashes through $10 before taking a long position.
At the very least, you should probably wait until Aug. 17 has passed. That’s when Krispy Kreme plans to release its second-quarter 2021 fiscal results.
If the posted fiscal figures aren’t too horrendous, then it might be reasonable to start accumulating the stock.
Apparently, JPMorgan analysts favor the future prospects of Krispy Kreme as part of a massive, $650 billion indulgence market.
I’m not prepared to call this market recession-resistant, but there is undeniably an American addiction to junk food that transcends the nation’s temporary challenges.
While Krispy Kreme sells an astounding 1.3 billion doughnuts globally, 93% of them are sold in North America.
I know, there’s a healthy eating trend in progress. Still, the data reveals an unsettling trend which, I suppose, is bullish for Krispy Kreme. A long-term study reported in The American Journal of Clinical Nutrition found that 92.7% of U.S. children and 86% of U.S. adults reported at least some junk food consumption on any given day.
Worse yet, “Higher percentages of junk food consumption among children compared with adults were observed across all population subgroups.”
The Bottom Line
So far, Krispy Kreme’s debut number two on the public markets hasn’t exactly been a resounding success. If you’re skeptical and want to wait for lower prices in DNUT stock before taking a position, I won’t blame you at all.
Still, it’s probably reasonable to say that the market for doughnuts will persist for a long time. It’s not necessarily great for the public, but at least there’s a reason to invest in Krispy Kreme.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.