Krispy Kreme donuts and coffee
Source: Krispy Kreme

After a Successful IPO, Is Krispy Kreme (DNUT) Overvalued?

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Jul. 2 2021, Published 11:18 a.m. ET

On July 1, Krispy Kreme (DNUT) had a successful debut on the stock market. On its first day of trading on the Nasdaq, the stock rose 23 percent despite disappointing pricing. The company announced that it raised $500 million in the offering. What is DNUT's stock forecast and how high can it go?

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Krispy Kreme owns, runs, and franchises retail stores that sell donuts. The company returned to public markets for the second time. JAB Holdings took Krispy Kreme private in 2016 after acquiring it for $1.35 billion.

how high could krispy kreme stock go
Source: Krispy Kreme
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Krispy Kreme has a strong IPO

On July 1, Krispy Kreme started trading on the Nasdaq under the ticker symbol "DNUT." The stock opened at $16.30—down 4.1 percent from its IPO price—and closed 23.5 percent higher at $21. A total of 29.4 million shares were offered in the IPO at $17 each. Initially, Krispy Kreme planned to offer 26.7 million shares at $21–$24.

J.P. Morgan, Morgan Stanley, BofA Securities, and Citigroup are acting as lead underwriters for the offering. The underwriters have a 30-day option to buy an additional 4.4 million shares from Krispy Kreme at the IPO price.

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How high could DNUT stock go?

Retail investors on social media platforms think that DNUT stock could reach $50 since it can’t be shorted over the next month. DNUT stock was down 5 percent in premarket trading on July 2 as investors booked profits.

how high could krispy kreme stock go
Source: Krispy Kreme
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DNUT’s stock forecast

The outlook for DNUT stock looks promising. Krispy Kreme operates in a QSR (Quick Service Restaurant) industry. The QSR industry is expected to reach $931.7 billion by 2026 compared to $647.7 billion in 2021.

Krispy Kreme is losing money and its net losses increased to $60.9 million in 2020 from $34 million in 2019. In 2020, the company's revenue grew by 17 percent YoY to $1.1 billion from $959.4 million. As of April 4, 2021, the company had $2.3 billion in total liabilities and $50.7 million in cash and cash equivalents.

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Is DNUT stock overvalued?

The Krispy Kreme IPO valued the business at $2.7 billion and its terms put the company’s 2020 price-to-sales multiple of 2.4x. Considering that peers Starbucks and McDonald's have NTM EV-to-sales multiples of 5.1x and 9.6x, respectively, DNUT stock looks undervalued. Inspire Brands took Krispy Kreme’s competitor Dunkin’ Brands private in 2020 after acquiring it for $11.3 billion.

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DNUT stock is a good long-term investment.

Krispy Kreme is known for its iconic glazed donuts. In 2020, the company sold nearly 1.3 billion donuts across 30 countries and established a large consumer base. Krispy Kreme owns 85 percent of its donut stores in the U.S. The company’s sales could surge as consumers return to their normal routines as the COVID-19 vaccine rollout continues.

Treats like donuts, ice cream, and cookies are usually popular even during difficult times. Krispy Kreme claims that customers visit its stores less than three times per year on average. If customers can be convinced to visit more frequently, there might be an opportunity for expansion.

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