Fess up, who's short the donut?
Shorts Get Lassoed by a Doughnut
By James J. Cramer
5/16/01 5:28 PM ET
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When people talk about enfilading fire between the shorts and the longs, you have to think about this Krispy Kreme (KREM:Nasdaq - news - boards). You are going to hear more about this company in the next 24 hours than you heard about it when it came public because it is going to give away free donuts in front of the New York Stock Exchange tomorrow. This is one of those events that the networks will pick up. Heck, with this rally, they will be all over it anyway.
So, if you are short KREM, you are in a panic. You know that the darned donuts taste good. You know that the company is on a roll, and you know that the publicity is going to be incredible. That's only one of the reasons why the shorts are panicking. They tend to panic when a stock moves from the Nasdaq to the listed because it is easier to short in the Nazz -- people just slap the trade on rather than wait for an uptick as they do on the New York Stock Exchange.
Most people are short Krispy Kreme because the valuation is incredibly expensive (ninety times earnings). I know I thought it was a short when I saw so many franchisees selling stock in a secondary. I didn't want to believe that they were doing it just to get liquidity. But the more I researched this story, the more I recognized that it was more like McDonald's (MCD:NYSE - news - boards) and less like Boston Chicken, the first being a successful franchise company and the second being pretty much a scheme to get franchise fees.
Once I understood that the books were clean as a whistle and the company's growth is for real, I covered the short. I have never believed in shorting on valuation only because there is always another guy out there willing to pay, in this case, 100 times earnings. That means you are liable to get squeezed.
In fact, if there is a "short" case on this one, it is that the growth is so willy nilly as to be defying the company's own controls. I tried to get an answer today from the company about how many places sell Krispy Kremes, and they didn't know. We wanted to know what relationships they had to sell donuts at say, Au Bon Pains and Starbucks, and again, they didn't know. We called around to 12 different regions where the doughnuts are being sold to ask who carries the donuts and we got a ton of different answers. The growth is, basically, so viral, that no one knows how many companies sell Krispy Kremes at how many different stores.
I can't tell you when the short squeeze will end here. I can tell you, though, that in a day's worth of research on the growth of Krispy Kreme, we could only conclude that the growth is just plain off the charts. And tomorrow the hype will just grow louder. I am sure glad I covered this one. To the Moon Alice, to the Moon. |
