KKD beat on Revenue by 1%, beat on earnings by .01 (after backing out the .03 including derivatives), reaffirmed earnings for the year. Based on PEG stock is cheap compared to rest of restaurant stocks (i.e. Yum, Wendy's, Darden etc. The stock will trade between $20 - $22 in the near future until next earnings. Nothing to worry about!!
When a momentum stock has tripled in price in less than a year and is selling at a bloated P/E ratio, there are a lot of high, usually irrational, expectations built into the stock price. Generally with such stocks, it is expected that earnings will exceed substantially exceed official estimates and guidance will be raised. Anything short of that is a disappointment. A slight beat on revenue, slight miss on EPS and no change to guidance is not enough to keep the irrational exuberance alive.
The company appears to be doing well. The problem is that a fair price for the stock given current earnings level and growth expectations is probably somewhere in the $15-$18 range (25-30 times current year estimated earnings) and this stock was way above that. After today's respectable, but not spectacular, earnings report I suspect that many of the momentum traders that won't settle for anything less than "beat big and raise" in an earnings report will flee and the stock price will return to a more reasonable value. It might be a good buy then. Being long momentum stocks into earnings is always a high risk proposition because anything short of spectacular results can lead to a nasty selloff.
actually non-gaap EPS would have been $0.17 so this metric also beat analyst estimates but compared to last quarter's results the beat isn't that impressive and certainly not enough to keep momentum traders in line.
also there were some weak spots in the results like cold beverages and health care costs
the most concerning issue was management's admittance that the third week of August comps fell flat after being up nicely during the first two weeks of August.
on a more positive note while the company just reaffirmed guidance management was confident to hit the upper end of the range.
overall this was a good call with management being VERY transparent on every metric and analysts generally satisfied
wouldn't expect any downgrades tomorrow based on the company's business trends and results but perhaps some analysts might use the chance to step to the sidelines citing excessive valuation metrics (which I don't believe as of this point).
Another good quarter but not as stellar as some of the last few - if long I wouldn't sell the stock here as the company is poised for double digit eps growth for many years to come.
If the stock moves down to the $15 area going forward I would consider taking a long position.
If analysts downgrade the stock I would look for a 20% plus decline in the share price tomorrow as momentum traders will be heading for the exit.
If the shares get defended by a couple of analysts I would expect the stock to recoup some ground but still end the day in the red around $21.50.
Personally I bought some shares in after hours as I would expect analysts to defend the stock.