What Happened: Shares of doughnut chain Krispy Kreme (NASDAQ:DNUT) fell 5.1% in the morning session after major indices retreated after the Bureau of Labor released inflation data for December 2023, which came in hotter than expected at 3.2%, above the market consensus of 3.1%. Similarly, the data showed that inflation rose by 0.3% compared to the previous month instead of the anticipated 0.2%.
These differences versus expectations may seem quite small, and make no mistake, they are. However, recall that there was much enthusiasm in the markets to end 2023 based on the expectation that rate cuts in 2024 are nearly a sure thing. Today's market move is reflecting a pushback on this narrative and giving back some of the big gains in the last few months of 2023. Said differently, today's market move is seriously floating the possibility that the market has gotten ahead of itself.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Krispy Kreme? Find out by reading the original article on StockStory.
What is the market telling us: Krispy Kreme's shares are not very volatile than the market average and over the last year have had only 8 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago, when the stock dropped 8.5% on the news that the company reported third quarter results with revenue, gross margin, adjusted EBITDA, and EPS all falling below analysts' expectations. These misses were driven by underperformance in its U.S. division, which accounted for 63.9% of sales this quarter. A number of restaurant and other discretionary companies have highlighted an uncertain consumer spending environment in the US as of late. On top of that, its revenue guidance for the full year was underwhelming. On the bright side, it opened more stores than projected, giving it more opportunities to grow its top line in the future. Overall, this was a bad quarter for Krispy Kreme.
Krispy Kreme is down 7.9% since the beginning of the year, and at $13.56 per share it is trading 15% below its 52-week high of $15.95 from July 2023. Investors who bought $1,000 worth of Krispy Kreme's shares at the IPO in June 2021 would now be looking at an investment worth $645.71.
