well, you say that KKD for you is a small speculation that you can afford to lose, and that falls within Graham's allowance for speculation, so in my opinion Buffett's "2 rules" do not apply here, I guess you agree.
BUT when speculating, only one thing matters. EXpected value, expected outcome. A good speculation means expected outcome is positive despite a significant probability of permanent impairment.
Let's see.. what's Cooper's expected behavior? What's Fortgang's expected behavior? What's KKD's expected sales? What's the probability that KKD's sales go allll the way back up to where they were at the honeymoon period shown on slide 38?
If turning this thing around was possible, how come KremeKo closed 12 stores out of 18? How come franchisees closed so many stores? See...these guys don't have stock options, they have EQUITY and they did their best to minimize costs (salaries utilities etc)(though admittingly they got gauged on the mix and supplies) but they tried to make it work and they ALL are either in default with loans, insolvent, and their creditors are in shock. Why can't Cooper turn around KremeKo, why can't he bring them, to the very least, to break even?
what is the probability of fixing those problems? it is P
ok, now your potential reward to make your expected value positive,has to be 100%/P
so if you think P=10% chance of a turn-around, you need the stock to go to $46, 10x what it is today. At P=20%, you need $23.
Even if P=50% which is cleeeearly not the case, you STILL have to expect a $9 stock price. That's around 1x sales, whereas the avrage P/S ratio of an averge growing stock is usually around 0.6 - 1. Now, how likely is the stock to trade up at 1x sales, when the margins are WHOLESALE margins with rising oil prices, and a Silver Point loan at 11%.
expected value above 0? not very likely...
>>By the time one "sees" it, it may be too late to take advantage of it.<<
Ha ha! That's a joke. My main investing problem is that I 'see' things WAY TOO EARLY!!!
For example, I started shorting KKD back in 2001 when it first went over 40...
I guess you think a stealth turnaround can just happen instantly?
<<<< As many here predicted in January at pooper scooper's hiring, it would be very difficult to stop the deterioration in the business or keep it out of bk; at the very least, kkd's long-term valuation was determined to be no more than a buck or two even assuming little or no debt. >>>>
Your valuation no longer applies because KKD has a new business model.
<<<< Call the various Chicago stores to find out. >>>>
Just as I thought, you can't give us addresses of the Chicago stores that you say have converted from factory to satellite because there are no stores in Chicago that have converted from factory to satellite.
Tell us your source and/or post the link to support your statement that there are Chicago factory stores that have converted to satellite.
Please tell where you found this article. I can't find it:
"CHICAGO (MarketWatch) -- Krispy Kreme Doughnuts Inc. Monday pointed to "ongoing analyses" as the culprit behind another delay in filing the company's quarterly report with the Securities and Exchange Commission.
"Until such analyses are complete," the Winston-Salem, N.C.-based doughnut maker said, it would be "unable to finalize its financial statements for the second quarter of 2005."
The statements, made in a filing with the SEC, come only a month after the company said it was looking at taking out about $25.6 million in pretax income in the periods from 2001 through the third quarter of 2005 when it restates its financials. See full story.
Krispy Kreme's business continues to suffer from changing consumer tastes and an internal probe into accounting and financial reporting obligations that the company has admitted it failed to meet.
I believe that the graph was presented at a kkd annual meeting. The graph was discussed widely here. I don't think anyone at the annual meeting gave a rat's a..; shorts aren't invited to annual meetings, you know.
There is an element of truth to your statement. The analogy in the world of economics is microfoundations; macroeconomics is garbage unless the theory has microfoundations.
The predictability of the kkd model is largely based upon the store life-cycle as detailed by Livengood in an infamous slide.
Huge initial sales followed by a seven year exponential decline as the business evolves from largely retail to approximately 60% wholesale.
When you combine the lifecycle with the age of the various stores, it is/was fairly straightforward to predict average unit volumes, profitability, and long-term valuation.
As many here predicted in January at pooper scooper's hiring, it would be very difficult to stop the deterioration in the business or keep it out of bk; at the very least, kkd's long-term valuation was determined to be no more than a buck or two even assuming little or no debt.