Dunking For Gains In Krispy's Cup
BY KEN HOOVER
INVESTOR'S BUSINESS DAILY
If you'd bet dollars to doughnuts when Krispy Kreme broke out of a 26-week base in May 2001, you could have nailed a 107% gain by the time it topped. The stock and its tasty pastries have a cult following.
The company came public less than a year earlier with a flair for self-promotion. The Winston-Salem, N.C., company's shops were popular in the Southeast. And Krispy's spread across the country was feeding its top and bottom lines.
It was easy to see why the stock was hot. Earnings the previous four quarters had been up 40%, 133%, 40% and 167%. Sales were accelerating, up 33%, 36%, 37% and 39%. The stock had an Earnings Per Share Rating of 97. The Relative Strength Rating was 92.
Krispy started its breakout Friday afternoon, May 4, 2001 (point 1 in the accompanying image). It finished the breakout the next Monday with a gap up on big volume. Follow-through days in the general market indexes flashed a buy signal a month before.
The company was off to the races quickly. It gapped up on big volume May 16 (point 2). May 21 (point 3) was another big day on the biggest volume of the advance. The stock peaked June 18. It was a cool double in seven weeks.
Even savvy investors could be forgiven if they were still bullish at the top. Early strength in a stock is a good sign. After a long bear market, it looked like stocks were back in gear. Maybe Krispy and a few other retail outfits could be the new leaders. That turned out to be wrong. But that's the way it looked then.
There were signs that could have warned the investor it was time to bail. Between May 16 and May 25, the stock advanced six of seven days, with one day (May 16) being the biggest point gain of the advance (point 4). That's one definition of a climax top. Climaxes usually happen after a long advance. This time the stock was telling us the party was over.
The stock gapped to a new high June 18 (point 5) on good volume. The next day it gave it all back on a spectacular outside day. An outside day occurs when the high is higher and the low lower than the previous day. That's another bad sign. The weekly chart showed clear distribution (point 6).
By then, management had done just about everything it could to hype the stock: A new offering was well received Jan. 30; two 2-for-1 stock splits within three months; CEO Scott Livengood told TV viewers the company was eyeing overseas expansion. What was left, doughnut shops on Mars?
But maybe Krispy wasn't done. It built a new base and seemed poised to breakout again late last year. Take a close look at that base. An ugly hitch in August (point 7) spoiled a cup with handle. It attempted a breakout Oct. 23 (point 8) before a proper handle formed. It failed before the day was done.
Another attempted breakout after a sterling earnings report flopped (point 9). As if toying with investors, Krispy failed on a third attempt Dec. 19 (point 10).
Was Krispy a little too well known by now? The Yahoo message boards give a clue. By year's end, nearly 47,000 messages had been posted on the stock. |
