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If post-earnings trend holds, Krispy Kreme's about to move big

The Exchange
Krispy Kreme doughnuts.

If the recent pattern holds, the negligible move in Krispy Kreme's (KKD) stock price Wednesday represents the last hours of calm before its earnings report leads to a massive shift.

In four of the past five quarters, shares of the Winston-Salem, N.C., doughnut and coffee chain have moved at least 15%, with two up days and two down, following the reporting of its results. The outlier was a relatively pedestrian 2.7% decrease in the fourth quarter of 2012. Ahead of the upcoming report, it was adding 0.8% at $19.56.

When it reports its numbers for the final quarter of 2013 after the close of trading, analysts are looking for earnings of 13 cents a share on sales of $118.8 million. Same-store sales are expected to improve 1.5% on top of a 4.5% increase from the same period a year ago. But the more important component will be whether it adjusts its fiscal 2015 outlook, because that likely will determine how tomorrow's trading activity shapes up. It was an earlier forecast for the fiscal year to come that sent its stock reeling following the third-quarter earnings report in December.

Though hardly a value stock, Krispy Kreme has a forward price-to-earnings ratio, 24.9, that's below its five-year average, a rarity in its sector. It also trails both Dunkin' Brands (DNKN) and the larger set of publicly traded restaurants in terms of the next-12-months multiple. Still, it's well ahead of the 18.6 for Canada's Tim Hortons (THI). Krispy Kreme finished 2013 up 105.7% from where it started, although its gain had been a staggering 160% before the post-earnings collapse.

One factor to watch could be weather. Many restaurants and retailers have said this winter's snow and harsh cold in the U.S., particularly the Northeast, weighed on their results. Bad weather certainly has some degree of impact on consumer shopping, though it also provides an awfully welcome cover for questionable execution.

Regardless, neither shorts, whose position totals around 9.9% of the float, nor longs, who have bought into the comeback of the past few years, would hesitate to hammer Krispy Kreme for another disappointment, weather-related or otherwise. The stock fell below its 200-day moving average a few weeks ago, and that was followed by the formation of a "death cross" on its chart, a bearish development for the technically inclined. And it must be noted that, other than its forward P/E, most other valuation metrics are higher than the average levels of the past five years, according to FactSet data.

Krispy Kreme has long been a polarizing stock, going public in 2000 and soaring, then cratering in the middle of the last decade amid an accounting mess. After falling as low as $1.08 in February 2009, it climbed all the way above $26 this past November, prior to giving up some of that ground. So far in 2014, it's tacked on about 1%, roughly in line with the broad market. Don't be surprised if that changes, perhaps substantially, by Thursday at this time.