The new guidance means that the company has increased its earnings guidance by at least $0.06. This translates to a solid 10.9% increase in guidance for EPS. According to Morgan’s statement, the resounding results were hugely supported by growth in the number of customers, but not price revisions. In fact, pricing contributed only 3%, which means 97% of the results were due to the company’s continuous growth in same-store sales.
Krispy Kreme’s 18-quarter streak of increasing same-store sales will play a major part in maintaining prospective earnings. This means that if same-store sales continue to grow, then there is a chance of trumping the new guidance at the end of this fiscal year. If the guidance was based on growth reported due to pricing, the potential for sustaining it, or even beating it would be over-ambitious. However, the denominator in this case (customer numbers) is quite reliable for a better performance.
Additionally, analysts’ old estimate of earnings, that is $0.55 per share, brings the company’s P/E ratio down to just 25x. If we factor in the revised guidance of about $0.60 per share, then we are looking at a forward P/E ratio of about 23.75x, not too far from the industry average of 21.68x.
This would also make the stock one of the cheapest in the industry compared to Starbucks Corporation (NASDAQ:SBUX)’s P/E of 32.25x. Additionally, the company’s PEG ratio for the next five years is also very well positioned at under 1, compared to the industry average of 1.25. Starbucks Corporation (NASDAQ:SBUX)’s PEG stands at 1.57, while Einstein Noah’s is pegged at 1.04. Dunkin’ Brands’ PEG is the highest at 1.70, with a P/E ratio of 42.64x.
The bottom line
Krispy Kreme may not be the biggest company in its industry, but it is showing grit and guts to take on the giants. Starbucks Corporation (NASDAQ:SBUX) certainly is the dominant force, while Dunkin’ Brands, despite its huge market cap, could be rated below Krispy Kreme in terms of revenue potential going forward. Einstein Noah is the underdog in this case, and poses no major threat to Krispy Kreme’s prospects.
The simple fact is that when you are experiencing growth in same store sales for 18 quarters running, that means you are doing something good. So now, let us factor that good into the company’s price and see what happens. This is the main reason why I believe that the stock is set for a continuous rally going forward. That is why you should get in before it is too late to catch the tide.
The article What This Company’s Guidance Means and Why You Should Get In originally appeared on Fool.com.
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Nicholas 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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