Krispy Kreme Doughnuts (KKD) 29.76 -0.37: Once the taste of the town, Krispy Kreme's stock is no longer very appetizing to investors, as they've dunked it by nearly 26% since late November. Anxiety over valuations, the dilutive effect of acquiring bread company, Montana Mills and fears of slower growth have contributed to the stock's poor performance.
Technically, the stock looks downright awful. A recent failure to break above its 50- and 200-day moving averages was followed up by a sharp break to the downside (see chart). Stock is now probing support near 30, with a decisive break setting up a near-term run at the October (and 52-wk) low of 27.40. Long-term moving averages also trending lower.
Given the oversold condition of the stock a move to the old lows would likely result in at least a modest recovery effort. Initial resistance is in the 32 to 32.50 range. Stock would need to rally above this ceiling to alter the bearish tone. Failure to do so would leave KKD vulnerable to yet another pullback. Briefing.com notes that there's very little long-term support below 27.40 until you reach the low-20s.
From a long-term perspective, a move back to the mid- to low-20s would present patient, growth oriented investors a nice (re)entry opportunity. Despite the stock's negative price momentum, momentum in the business is still pretty strong. KKD expected to deliver sales and earnings growth in FY04 of 25% and 31%, respectively. Growth being driven by new store openings, international expansion and low double-digit same-store sales.
When you consider that KKD has fewer than 220 stores nationwide, and that it is just now beginning to explore overseas markets, it's clear that the company is far from maturity. Though it will be difficult, if not impossible, to maintain its early hyper growth rates, management has positioned the company to deliver better than market growth for some time to come. Which is why Briefing.com thinks investors might want to start nibbling at the shares again should they become more fairly valued in the mid- to low-20s. -- Robert Walberg, Briefing.com |
