In brief, Krispy Kreme Doughnuts (NYSE:KKD) is showing tremendous growth, and having this stock as a long position will bring growth to any portfolio.
Donuts and Coffee
It is not uncommon to combine donuts with coffee. Dunkin Brands Group Inc (NASDAQ:DNKN)’ Donuts offers coffee to its customers. But more demanding palates buy coffee from other restaurants. Starbucks Corporation (NASDAQ:SBUX) targets the high-end of the price spectrum. The lounge-type restaurant is ideal hang out with friends or do some work while enjoying a nice cup of coffee. The restaurant handles a variety of flavors that are appealing to the majority of the customers.
The company trades with a P/E of 32.8, above the industry’s average of 22.9. Also, the company carries no significant debt in its balance sheet, with a debt/equity ratio of 0.1, compared to the industry’s average of 0.9. Revenues rose by 10% to $3.5 billion during the three months ending in March, and net income rose by 25% to $390 million.
The company has expanded significantly by opening new stores in China, India and Brazil. Starbucks Corporation (NASDAQ:SBUX) inaugurated 590 companies, and 25% of them were in the China/Asia Pacific region. This strategy will drive sales upwards because the emerging markets are goldmines. Although drinking Tea is popular in China, I have no doubts that Starbucks will be successful.
In addition, the coffee retailer repurchased more than 3 million shares of common stock during the second quarter of 2013. With a strong free cash flow, investors should expect an expansion of the share repurchase program, and even a dividend hike in the interim. Its free cash flow increased from $262 million to $888 million for a whopping 340%. Certainly nothing to sneeze at.
The bottom line
In brief, these companies will perform superb in the future. They are implementing aggressive expansion plans in China, India and other countries in Asia. Revenues are likely to continue improving. Dunkin’ Donuts and Krispy Kreme compete directly for market share, but there are enough customers for both restaurants, especially in Asia. Starbucks Corporation (NASDAQ:SBUX) continues to be the leader the premium coffee sector, and the company continues to expand. Therefore, I would recommend buying these stocks as a basket to gain exposure to the restaurant sector.
The article Donuts and Coffee: A Perfect Combination originally appeared on Fool.com is written by Robinson Roacho.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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