Krispy Kreme’s (DNUT) stock has been on a sweet run, surging over 30% in the past month—including a remarkable 25% jump just last Wednesday. The rally caught the eye of meme stock traders, but the momentum has since cooled as investors take a closer look at the company’s high debt levels, negative returns, and growing operational hurdles. As recent price action shows, an almighty spike has been followed by an almighty slump.
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Given the recent volatility and underlying concerns, I’m choosing to stay Neutral on the sidelines for now. I’d prefer to see stronger signs of sustainable profitability before considering taking a bite of DNUT stock.
An Empire Built on Glaze
Krispy Kreme is a specialty doughnut company known for its Original Glazed recipe. The company employs a multi-channel distribution strategy, combining company-owned stores, franchise operations, and strategic retail partnerships to reach consumers.
The doughnut specialist operates in more than 40 international markets, competing primarily against Dunkin’, regional chains, and coffee giants like Starbucks (SBUX). Yet, with a 37.5% market share in the specialty donut segment and an impressive 95% brand recognition, Krispy Kreme has established itself as a leader in its niche.
However, recent developments have created headwinds for the brand. In late June, Krispy Kreme announced an end to its partnership with McDonald’s (MCD), which had made donuts available at 2,400 McDonald’s locations.
Despite the Sweet Surge, Bitter Fundamentals
Krispy Kreme’s recent financial results have been relatively lackluster. In Q1 of FY2025, the company reported net revenue of $375.2 million, a year-over-year decline of 15.3%. The company posted a net loss of -$33.4 million, with earnings per share of -$0.05 — a dramatic reversal compared to the same period the previous year.
The balance sheet also contains several concerning metrics, with a debt-to-equity ratio of 1.32 and a worryingly low current ratio of 0.36, indicating potential liquidity constraints. Return on equity stands at -1.90%, while operating margins remain in negative territory at -2.45%. Not the signs of a healthy business.
Valuation Disconnect
Krispy Kreme’s current valuation presents a puzzle, contributing to the stock’s extreme volatility (26 moves greater than 5% over the past year). It trades at a relative discount to industry peers, with a price-to-sales ratio of 0.40x compared to the sector average of 0.95x, and a price-to-book ratio of 0.58x versus the 2.05x for the sector. However, the enterprise value-to-EBITDA multiple of 23.39x greatly exceeds the industry average of 11.24x, suggesting the company appears expensive on a cash flow basis.
Typically, discounted multiples reflect market skepticism about a company’s ability to achieve sustainable profitability. Yet, interest in Krispy Kreme has recently skyrocketed on investor sites like Reddit, where comments on DNUT surged over 76,800% last week.
The stock’s short interest had reached approximately 35% of the float, potentially helping to fuel the recent meme stock rally, as retail traders targeted the stock for a potential short squeeze. It now sits at 14.15%, indicating persistent doubts about the company across markets.
The stock has since cooled a bit (down almost 14% over the past 5 days), which has given the moving averages technical indicators a bearish barbell (negative on the short and long averages, positive in the middle) — little help for momentum enthusiasts.
Is Krispy Kreme (DNUT) a Good Stock to Buy?
On Wall Street, DNUT stock carries a Hold consensus rating based on one Buy, six Hold, and one Sell ratings over the past three months. DNUT’s average stock price target of $4.23 implies approximately 16.5% upside potential over the next twelve months.
Analysts following the company have recently shown some skepticism about the stock. For instance, BNP Paribas Exane’s Jaafar Mestari recently downgraded the stock and cut his price target to $3.50. Similarly, Morgan Stanley’s Brian Harbour has cut his price target from $3 to $2.50 while maintaining a Sell rating.
Even the more bullish Sara Senatore from Bank of America, who maintains a Buy rating on the stock, has recently cut her price target from $7 to $6.
Resisting the FOMO Behind Krispy Kreme
Krispy Kreme’s investment appeal rests on its iconic brand, exceptional customer loyalty, and market-leading position. However, persistent margin compression and profitability struggles continue to plague its operations. Meanwhile, high leverage limits its financial flexibility, while negative returns on equity and capital raise questions about management’s ability to generate shareholder value.
While the stock has jumped recently, in general, investors should resist the temptation to chase a recent rally — especially when it introduces meme stock volatility that adds another layer of risk.
The donut maker might eventually evolve into an attractive investment opportunity, but today’s fundamentals don’t support the recent price appreciation. Until Krispy Kreme demonstrates sustained profitability growth and improves its balance sheet, I believe the stock is better suited for addition to a watchlist…not a portfolio.