... Well if that isn't a ball-breaker. Timely. Prescient. A must read. Great dig, Divursifi!
.... insightful as to the future. Seems to agree with most every KKD site-report posted here.
And just who the hell is OTA Off The Record Research? Always consider the source. 'Dat you, Big Short??
... here's what they say about themselves:
"About OTA: Our History
"Founded in 1983 and currently capitalized at more than $100 million, OTA�Off The Record Research is at the forefront of qualitative and quantitative securities valuation. OTA first applied its skills to identifying investment opportunity for its own account. Today, OTA is a full-service broker with a select group of the most prestigious money managers in the United States.
"Off The Record Research was founded in early 1995 as an investment research company filling the need for reliable, unbiased research to supplement and counter traditional Wall Street analysis.
"The two firms teamed up in 1996 to provide a complete line of services to our institutional clients. Our exclusive client list enables us to develop significant relationships with each customer.
"OTA�Off The Record Research is committed to remaining at the forefront of the changing financial markets for the benefit of our clients."
... We longs have been dinging Krispy Kreme for its many faults not the least of which is its fast approaching market saturation. Let's take a look at the Bull Case for Krispy Kreme -- what it is that justifies KKD's 60 P/E multiple.
The company is continuing its expansion strategy, which we believe will increase its concept to more than 800 stores in the U.S., from about 300 currently, within five years. KKD also recently awarded development rights in the U.K. and Ireland, and opened its first store in Australia. We expect revenues to increase at a 23% CAGR over the next five years, due to expansion and same-store sales growth.
Thomas Weisel says:
"This business possesses one of the strongest growth stories in our universe coverage. We continue to assert that Krispy Kreme is still very much in the early phase of its growth cycle given the company's modest domestic store base and unique consumer branded product."
Value Line has a 2007 target for KKD of $64 - $98, stating:
"We believe there are still plenty of opportunities for growth through domestic and international expansion."
That's really something. Doofus couldn't say it better. But why the Bull Case?
... Something to shoot out. To do battle with. This the common knowledge that supports KKD today. Longs win by accepting the common knowledge, Shorts by disagreeing with it.
... Sometimes it pays to be Short. It always pays to be skeptical.
not today it don't.
... Ouch. Yet, dear friend, the day is young. And tomorrow is another day.
So why is Krispy's market saturated? Keep it short. 2,000 words or less
1) Hot/Now stores. Great business. Requires 250,000 population. Built out in US.
2) Satelite Donut 'stores.' Reheated donuts, entrenched mom and pop owner/operator competition. Will canabalize Hot/Now and wholesale business. High fixed costs. Newport Beach, worst case.
3) Wholesale: Completely different business -- route servicing. Transportation costs critical. Entrenched competition with larger, more efficient factories, lower costs.
4) Walmart: Toughest bargainers in retail. Again, entrenched competition has equal direct costs/donut. KK factories geographically unsuited to Walmart supply chain.
5) Overseas markets: Problematical. A guess at best. Costly and time consuming to exploit. Dunkin failed in Britain.
6) Add beverages, broaden menu of Donut shops: In effect, Coffee Houses. Too little, too late.
... Yes. But this largely has to do with top-line sales. Basically, the pattern is to add low margin, low profit business which will drag bottom line earnings even more.
And this is a company which S&P, Weisel, and Value Line are telling us faces clear sailing into the future, a certainty as far as the eye can see if we accept the 60 multiple as fair value. The Bull Case.
<<OTA first applied its skills to identifying investment opportunity for its own account. Today, OTA is a full-service broker with a select group of the most prestigious money managers in the United States.>>
Does that mean that they couldn't make money trading based on their own research, so they decided to make money selling the research and let their clients worry about making money?