Bear of the Day: Krispy Kreme Doughnuts (KKD)

Eric Dutram
Updated
0

There was a time when companies like Krispy Kreme (KKD) dominated investor discussions thanks to their huge growth trajectories and seemingly limitless expansion opportunities. However, as consumer tastes have begun to change, companies like KKD have been left by the wayside and have definitely struggled in this more health conscious environment.

Shares of KKD have yet to recoup the levels they saw in the early 2000s, and the past two years have seen a loss of roughly 40%. Recent trading has been especially poor as KKD shares have fallen over 25% in the past three months alone.

And though some might be thinking that these big drops make KKD a value pick now, there could actually be further to fall for the company. Not only are shares still relatively expensive, but the company has been seeing declining earnings estimates too.

Recent Estimates & Value Score

KKD is expected to see EPS growth of 14% this year and 17% next year, which is pretty solid. However, investors have witnessed declining earnings estimate revisions lately suggesting that analysts are losing faith in the company’s growth story. In fact, we haven’t seen a single estimate go higher in the past two month period.

Krispy Kreme also has a pretty poor track record when it comes to earnings season, including a four quarter average of a miss of 3.1%. The longer term isn’t too much better as we see just three beats in the past nine quarters meaning that KKD has a difficult time living up to expectations.


And from a value look, the company has a P/S and P/CF ratio that are higher than industry at large in addition to a higher EV/EBITDA level too. And while the company has a PE of 17.8, this isn’t really low enough considering how far the stock has fallen in the past few years suggesting it isn’t very cheap considering its moderate PE.

For these reasons, it shouldn’t be too surprising to note that KKD has a Value Score of C and a Zacks Rank of #5 (Strong Sell), meaning we are looking for more underperformance from this stock in the near future.

Other Choices

While KKD might be struggling right now, there are several great options in the restaurant space. In fact, the industry has a top 20% rank and it has more than a dozen stocks that have a rank of at least ‘buy’.

One in particular to keep on your radar is Dave & Buster’s (PLAY) which is a Zacks Rank #1 (Strong Buy) stock right now. This security saw a big earnings beat last quarter, is expected to see continued earnings growth, and has a great business model thanks to its focus on high margin games. So if you are looking for a different choice in the restaurant segment definitely give PLAY a closer look as it could be an excellent choice for consumer-focused investors right now.

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