Krispy Kreme stock may surprise you this week

Warning: the agreement you will see in Krispy Kreme Inc. NASDAQ:DNUT it is not for the impatient looking for a quick profit. If your portfolio needs a morale boost, the stock can get off to a great start before realizing its true value.

Many factors have entered the equation to make this a potential target for market participants today.

You might be wondering what the manufacturing sector and Wall Street’s outlook on it have to do with a candy company like Krispy. However, the truth is that it is strongly linked to it so that the broader economic machine can give the company’s financials a nice upward push.

For now, keep in mind that performance between SPDR fund for selected consumer discretionary sectors NYSEARCA: XLY and the broader S&P 500 Index over the past six months, you’ll quickly notice that consumer discretionary stocks have opened a gap of up to 6.2% to catch up with the S&P. Will Krispy Kreme be part of this recovery?

Here’s your best chance.

Bigger picture stuff

Before you can justify a potentially bullish thesis on Krispy stock, you should understand why markets may soon become optimistic about the industry as a whole and why current economic developments can bring trickle-down benefits specifically for a name like Krispy Kreme.

History has changed, and this is not the stock market you are used to seeing from 2020-2023; Today’s market must contend with the timing of the FED’s proposed interest rate cuts, which can be estimated to arrive as early as May of this year.

Arriving at this conclusion may be easier by checking the FedWatch tool on the site ECM Group NASDAQ: ECM. What exactly will it mean for stocks like Krispy Kreme if and when the Fed finally pulls the trigger on these proposed interest rate cuts for the economy?

Contrary to cryptocurrency enthusiasts, there is a way to assign a value to fiat currencies like the dollar, starting with interest rates. When rates fall, the value of the dollar tends to decrease since it will generate less interest for those who hold it, right? Ok, now what happens if the dollar goes down?

A weaker dollar can make American exports more attractive and affordable to foreign nations and boost manufacturing names like this one Stanley Black & Decker New York Stock Exchange: SWT and also agricultural names such as FMC NYSE:FMC as the question comes. Unfortunately, the opposite is true for domestic names that have no international sales.

You can test this thesis live by reading this analyst 2024 macro outlook report on The Goldman Sachs Group NYSE:GS. Ordinarily, this would mean bad news for Krispy Kreme, which sells most of its products in the United States. Management knows this and has made some changes in preparation for the big change.

Why Krispy Kreme?

In its third-quarter 2023 earnings presentation, management said Krispy is now present in 37 countries, with expansion into Switzerland and Kazakhstan. While 75% of all sales still come from the United States, the company is taking appropriate steps to diversify.

Increasing their international presence could help cushion the effects of a weaker dollar interest rate shortening time frame. Who else has played so beautifully to build an unbreakable moat around their revenue generating power? Starbucks NASDAQ: SBUX.

The last time Krispy reported earnings, shares fell as much as 15% due to exaggerated net losses driven by inventory write-downs related to the closing of the Sweet Treats business, meaning the core business did well.

Today, shareholders can also celebrate expansion into one of South America’s best growth stories, Brazil. In a press release, management declared the opening in Brazil to further diversify sales outside the United States

Analysts comfortably expect 20% earnings per share growth over the next 12 months, which is higher than the Starbucks model, which only projects 16.2% EPS growth.

By looking at how markets perceive these growth projections from analysts, it becomes clear who excites investors the most today. Here’s how Krispy stands out from the pack in its forward price-to-earnings ratio, which is how the market places a value today on tomorrow’s expected earnings.

Starbucks trades at a forward P/E of 20.3x, higher than the industry average of 16.1x, which isn’t bad for an outlier. However, it quickly takes a backseat to what Krispy Kreme is valued at today. A forward P/E of 25.6x commands a 26% premium valuation over Starbucks and 60% over the rest of the industry.

Remember the saying, “It has to be expensive for a reason.” Now you know why, so do yourself a favor and consider adding it to your watch list before it shows up on your earnings this week.

Before you consider Krispy Kreme, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Krispy Kreme wasn’t on the list.

While Krispy Kreme currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here