Dunkin Brands Group Inc (NASDAQ:DNKN) has also proven to be more efficient, sporting a profit margin of 15.9% versus Krispy Kreme’s profit margin of 5.1%. And Dunkin Brands Group Inc (NASDAQ:DNKN) yields 1.7%, whereas Krispy Kreme Doughnuts (NYSE:KKD) doesn’t offer any yield.
On the other hand, Dunkin Brands Group Inc (NASDAQ:DNKN) has a boatload of debt to deal with, carrying a debt-to-equity ratio of 5.3. This will limit the company’s growth potential and it could lead to a dividend cut in the future if the economy sours.
Then there’s the all-mighty Starbucks Corporation (NASDAQ:SBUX) . Starbucks might not sell doughnuts, but it does sell coffee, ice cream, cookies, brownies, and other snacks. Some people visit Starbucks for these items opposed to coffee. But that doesn’t really matter. You just want to know if it’s the best investment of this bunch. The short answer is yes.
Starbucks Corporation (NASDAQ:SBUX) sports a healthy profit margin of 10.8%, yields a decent 1.2%, and its debt-to-equity ratio stands at a very impressive 0.1. This strong debt management will allow growth to occur without any hindrances and it may lead to more capital being returned to shareholders.
Starbucks is trading at 35 times earnings, which isn’t cheap, but it’s a better value than Krispy Kreme at 59 times earnings, or Dunkin Brands Group Inc (NASDAQ:DNKN) at 47 times earnings. Perhaps the most important point of all is that Starbucks Corporation (NASDAQ:SBUX) CEO, Howard Schultz, is a phenomenal leader, which is evidenced by employee ratings on Glassdoor.com. After 1,749 employee ratings, 86% of those employees approve of Schultz.
Conclusion
Krispy Kreme might very well have more room to run. As it’s often said, the trend is your friend. And you never want to bet against strong momentum. But Krispy Kreme Doughnuts (NYSE:KKD) plans to expand into the teeth of an unstable economy. These expansion plans aren’t expected to be complete until 2017, but once expansion plans are in motion, they’re likely to continue.
Krispy Kreme is a good little company, but based on its business model and the current economic environment, it might only continue to see success over the long haul if it stays little.
There is potential for the company to thrive if it follows through with its expansion plans, but it’s not going to be easy.
Overall, Krispy Kreme Doughnuts (NYSE:KKD) looks to be a decent momentum play, but a long-term investment would be high risk.
The article Can This Company Make You Dough? originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks Corporation (NASDAQ:SBUX). Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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