Why Krispy Kreme Stock Got Toasted

Why Krispy Kreme Stock Got Toasted

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Krispy Kreme Doughnuts were getting left in the fryer today, falling as much as 17% after the company posted disappointing guidance in its third-quarter earnings report.

So what: The donut chain had a respectable quarter, delivering earnings per share of $0.16, beating estimates by a penny, while revenue increased 6.7% to $114.2 million, essentially in line with expectations. Same-store sales improved 3.7%, a modest pace, and it was the company's 20th consecutive quarter of positive comps. CEO James Morgan stood by Krispy Kreme's performance during the quarter, saying, "Our relentless focus on executing our long-term strategic plan is enabling us to strengthen our Company, gradually unlock our brand's full potential and create value for our shareholders." Despite the solid quarter, 2015 EPS guidance was light at $0.71 to $0.76. Analysts had expected $0.77 a share.

Now what: For a growth stock like Krispy Kreme, coming up short on guidance often causes a sharp sell-off as we're seeing here. Management noted that it expected international franchise same-store sales to continue to be negative as the company plans to add 85 new stores abroad next year. Still, overall growth seems to be on track as the domestic segment is still strong. Today's drop seems to be almost entirely valuation-based as shares have more than doubled this year, indicating that they may have been ready to cool off a bit.

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The article Why Krispy Kreme Stock Got Toasted originally appeared on Fool.com.

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Originally published