But -
--- Is their "per store business model" sound? If they earn a 12% Return On Equity (ROE), they're just a plain vanilla (economically speaking) business. If they earn 20%, they're stars. If they earn 6%, they're bums. Without a superb ROE, all else is hubris and accounting fluff.
Unless they now earn stellar ROEs (or have a wagerable promise of doing so in the future), it does not matter whether or not their per-store sales are superb or growing, whether or not their customers are fanatically loyal, whether or not they franchise or build, or whether or not their U.S. and global expansion opportunities are saturated or just beginning.
If their business earns an "economically true" 12% ROE, then their per-share long run shareholder return will be approximately 12% (which is no more exceptional than roughly the long run S&P 500 return). There is no getting around this, since that is exactly what R.O.E. represents. Short and mid-run stock price performance deviations from ROE are fluctuations, not trends - trade 'em if you can, but be candid about how you are making your money.
The fact that they are not a new business, have a (fanatically!) loyal customer following, yet are only showing typical, middling ROEs raises a red flag to me. They've had decades to get their basic per-store business model in order -- should that not be just as stellar and exceptional as their product apparently is?
(On a personal note, I've never tried their product, but hope to enjoy the opportunity later this month -- my sister is an ex-NYC Krispy Kreme Junkie, Prophet and Proselytizer, and we hope to make a trans national border "pilgrimage" to a KK store in the USA. Call me crazy and her dedicated when it comes to yeasty treats, but I still want to know their ROE.....)
FWIW, I understand McDonalds did and does earn 20% ROEs. Long haul 20%+ ROEs make shareholders rich......
I will stipulate that they have a unique exceptionally wonderful product and that their expansion opportunities are limitless. I am sure that ten, twenty and thirty years from now they will likely sell many, many-many, and many-many-many (respectively ;-) times more doughnuts than they do today. The thing is, no one has explained to me (and I have not figured out) how they are going to make their shareholders rich. Can anyone tell me how?
- Daniel |
