Krispy Kreme May Be Good for You, Says Jim Cramer
By: Don't think of Krispy Kreme as only a delicious indulgence; it may benefit you too!
The stock that is.
"Krispy Kreme has been absolutely on fire ever since it reported earnings back in November, rallying some 75% in the last two months," said Cramer.
What gives? Krispy Kreme had fallen out a favor on Wall Street for quite some time. Why the resurgence?
The History
Back in 2003 the stock traded over $40 but then fell to under $20 and stayed in that range for about 8 years with the decline, at least in part, due to the nation's disdain for bread, cake and other carbs.
"The company's first loss back then was blamed on the rise of the low-carb Atkins diet," said Cramer.
However, the Mad Money host thinks another negative catalyst – something far more powerful took shares down.
"Krispy Kreme expanded way too aggressively with too many stores showing up in places with no ad support," he said. "Ultimately the company ended up closing half its stores and many of its franchisees filed for bankruptcy."
By the time of the Great Recession in 2009, Krispy Kreme's stock fell to a dollar and change.
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The Resurgence
However, since that time, Krispy Kreme has been bouncing back marching all the way up to $12 as of January 18, 2013.
Gains are due in part to healthier options on the menu, such as oatmeal and yogurt. And the low-carb craze isn't quite what it was.
As a result, in its latest earnings report, Krispy Kreme delivered a 4-cent earnings beat off an 8 cent basis, with better than expected revenues that rose 8.5% year over year. The company also gave upside guidance for the next fiscal year, and they laid out plans to grow the store base.
And the trend looks like it should continue.
Krispy Kreme's same store sales have been positive for 16 consecutive quarters or four straight years. "In the latest quarter, the company saw a 6.8% increase, which is a fabulous number," said Cramer.
Also, the stock isn't particularly expensive.
"Krispy Kreme sells for 21.5 times this year's earnings with a 25% growth rate," Cramer explained. That's a lower multiple than Dunkin Donuts, which sells for 23 times earnings despite having a substantially lower 17% growth rate. And Krispy Kreme has roughly the same multiple as Starbucks, 21 times earnings, even though Starbucks has a lower 18% growth rate."
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