Let’s face reality. Getting up in the wee hours of the morning only to later fight through rush-hour traffic and sit in a cubicle for 8 hours or longer is rarely anyone’s definition of fun. But what makes this hallmark of American corporate life tolerable? Typically, the answer comes in the form of a baker’s dozen of glazed doughnuts along with a piping hot cup o’ Joe.
And very few do doughnuts and coffee better than Krispy Kreme. Commanding one of America’s most respected brands, Krispy Kreme’s upcoming initial public offering (IPO) could give your portfolio a much-needed sweet boost.
Krispy Kreme Financial History
In a single day, a Krispy Kreme store located in a high-traffic metropolitan area makes over 50,000 doughnuts. Overall, the company is responsible for churning out over 20 million of these delectable temptations. Further, it makes over 32 different types of doughnuts, with certain stores offering unique concoctions, such as doughnut birthday cakes. This creativity and constant analysis of consumer market data distinguishes DNUT stock from other fast-food-related businesses.
Better yet, Krispy Kreme’s brand and operational advantages translate into notable revenue growth. For fiscal year 2020 (ended Jan. 3, 2021), the doughnut maker generated top-line sales of $1.12 billion, which was up nearly 17% from the prior year’s tally of $959.4 million. What’s more, 2019 was itself a standout year, with the company pinging growth of 20.5% over 2018’s total net revenue of almost $796 million.
Despite the robust growth trek — especially for a long-established business — some critics suggested that the Krispy Kreme IPO is overvalued. Citing the possibility of JAB Holding seeking a payday while letting shareholders foot the bill, combined with a poor earnings trend, DNUT stock carries risks. Still, the red ink in net income stems from management reinvesting in the brand. As well, the company’s encouraging first quarter of 2021 report suggests the company can soon become profitable again.
Finally, while it’s difficult to understand the true motivations of an IPO, Krispy Kreme compares favorably to its rivals. For instance, before Dunkin’ Brands went private under an acquisition deal, it featured only small single-digit annual growth between 2016 and 2019. On the other hand, Krispy Kreme enjoys double-digit growth while getting revenue above the $1 billion mark. Thus, there exists incentive for insiders to stay the course.
Krispy Kreme Potential
While it’s natural to have questions regarding a public market debut, the proceedings over DNUT stock enjoy significant upside potential. First, you must appreciate the cynical argument. According to Psychology Today, “Your brain needs sugar (usually in the form of glucose) to function normally.” Lack of this sweet-tasting carbohydrate leads to cravings, which then lead to foraging behaviors. For many, satisfaction only arrives when their taste buds merge with one of Krispy Kreme’s 32 flavors.
Second, Americans consume an almost unimaginable number of doughnuts — over 10 billion of them, according to research by social advocacy website DoSomething.org. Because Krispy Kreme’s founder Vernon Rudolph launched the company in 1937, it has substantial sway with the American public. For context, McDonald’s (NYSE: MCD) original founding dates back to 1940. Therefore, despite initiatives to promote healthier eating, these powerhouse fast-food brands continue to dominate the broader restaurant industry.
Third, the steady reopening of the economy both in the U.S. and many of the countries where Krispy Kreme products are sold couldn’t have come at a better time for its IPO. As more people hit the streets and take advantage of the opportunities that the COVID-19 pandemic denied them last year — for example, baseball games — fast-food outlets should benefit from a conspicuous rise in sales.
Last, the winds of the business ecosystem suggest that companies want their employees to return to the office now that the public health crisis is fading. Of course, this isn’t what worker bees want to hear but it’s great news for DNUT stock. After all, Krispy Kreme can now resume its role as the unofficial fuel of corporate America.
How to Buy Krispy Kreme (DNUT) Stock
With an IPO, underwriters have one objective: Sell their limited allotted shares at the highest rate possible. Naturally, then, underwriters will reach out to their choicest clients for public market debuts. To encourage these clients, they enjoy the benefit of buying shares below the expected market price.
Logically, this dynamic puts retail investors at a disadvantage. However, participating in an IPO at the open isn’t automatically ruinous. Entities that buy pre-IPO shares are expected to procure everything offered to them. Also, the process for retail investors is easier, especially if you know how to buy stocks. If not, follow the simple steps below.
Step 1: Pick a brokerage.
Thanks to the advent of mobile trading apps, the brokerage industry underwent a paradigm shift. To compete with the new wave of platforms, established brokers standardized financial incentives, such as commission-free trading. That means you are free to choose a platform that best suits your needs and preferences.
Below is a list of best brokers to consider.
Step 2: Decide how many shares you want.
A step that’s easy to gloss over, your share count determines your risk-reward profile. Therefore, it’s best to give this figure some thought prior to trading. A higher share count allows you to accrue greater profitability should the target stock rise in value. However, the opposite circumstance exposes you to steeper losses.
Step 3: Choose your order type.
Before your first trade, familiarize yourself with these concepts.
- Bid: The bid is the top price a buyer will offer. It is always lower than the ask.
- Ask: The ask is the lowest price that a seller will accept. It is always higher than the bid.
- Spread: The difference between the bid and ask, the spread also signals market liquidity and risk. Tighter spreads imply higher liquidity and lower risk due to ample buyer availability. In contrast, wider spreads suggest lower liquidity and higher risk.
- Limit order: Use a limit order to acquire or sell stock at a specific price. Note that the market does not guarantee fulfillment of limit orders.
- Market order: Use market orders to buy shares at the prevailing rate. Buy orders execute on the ask and sell orders on the bid.
- Stop-loss order: Stop-loss orders are protective orders that exit your position at a predetermined (requested) price or the next available price, whichever comes first. Beware of gap-down sessions, which may cause your stop-loss order to fill well below your requested price.
- Stop-limit order: To prevent any surprises, use a stop-limit order to only allow automated exits to execute at a specific price. But like limit orders, placing a stop limit does not guarantee execution.
Step 4: Execute your trade.
To execute a market order, follow these steps:
- Select action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same steps for a limit order, with the exception that you must enter your desired execution price.
A Freshly Baked Offering Worth Biting Into
One statistic that DoSomething.org mentioned should provide food for thought for prospective buyers of the Krispy Kreme IPO: “20% of all American meals are eaten in the car.” This factoid implies that once society normalizes, ravenous demand will support this public market debut. Though challenges remain for this IPO, the overwhelming love for fast food in this country and other markets should be profitable for DNUT stock.