Krispy Kreme Doughnuts (NYSE:KKD) was once a company that promised high-flying returns back when it first went public, though it has suffered from promising more than it delivered. Some tough years of losses and poor management have seen to this. The stock is so unloved that Wall Street no longer has any major analysts regularly following it. So is there any hope for Krispy Kreme?

Bad Earnings Getting Better
Krispy Kreme narrowed its losses in its just-reported third quarter fiscal 2010, as it lost $2.4 million, or 4 cents a share, compared to $5.9 million, or 9 cents a share in last year's same quarter. Cash from operations was up to $5.8 million, from $1.3 million, this year's quarter over last year's. The narrower loss was squeezed out, despite lowered revenues, from $94.3 million in last year's third quarter to $83.6 million in this quarter. The company reduced its long-term debt to $49 million from $75 million a year ago.

Others in the Donut Biz
Donuts haven't exactly been a recession-proof business, as Krispy Kreme has proved by its struggles. Tim Horton's (NYSE:THI), which also struggled with earnings in its recent quarter, did so because it undertook a reorganization of its restaurants, yet the company looks healthy and poised to take advantage of this, as its share repurchase program underscores. Horton's has a good brand and customer loyalty, especially in its Canadian stores. So, too, does Krispy Kreme have a good brand, and while it is trying to get in more on the coffee trade with its small store concept, it should be noted there's fierce competition in coffee too, and Krispy Kreme is a light player in the latte business for now.

Starbucks (NYSE:SBUX), for example, has been buying less coffee from Guatemala, showing there is pricing pressure on the supply end of that commodity, and that it has the scale to do something about it, - buying elsewhere. McDonald's (NYSE:MCD) has obviously added to the coffee pressure, raising indirectly the stakes for the small players in the coffee-and-donut group such as Krispy Kreme.

Krispy Kreme's Possibilities
The actual over-promising by Krispy Kreme in the time after its fevered IPO years ago, really is not that relevant to the company now. It is pursuing a different strategy, and though the recent financial results were mixed with revenues down and earnings still off, these are improving from their worst of just a couple of years ago. Also, the small store strategy coupled with slightly wider offerings such as coffee and other items, along with management tightening up operations and paying down debt, as well with some careful expansion to more stores, are all good signs. (Learn more about IPOs in The Murky Waters Of The IPO Market.)

The Bottom Line: Unloved, Unwanted
Even The Street virtually abandoning the stock isn't a bad thing for investors interested in a possible turnaround play. So Krispy Kreme is a beaten down stock that has been trading in the $2-3 range; The Street is telling us it's unloved, unwanted, but it just might be a bargain.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  9. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  10. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!