Hungry Investors Look to Krispy Kreme Dollars to doughnuts.
That’s how IPO investors were betting Wednesday as shares of Krispy Kreme Doughnuts Inc. (KREM), the profitable, 63-year-old chain, soared 76% in first-day trading.
“People are looking for earnings,” said Stefan Cobb, manager of the Focus Capital portfolio in Seattle, noting that Krispy Kreme and insurer MetLife Inc. (MET), which also registered a solid debut, both are in the black.
The Winston-Salem, N.C.-based maker of the Hot Original Glazed and other doughnuts, which posted a profit of $6 million last year, rose $16 to close at $37, giving the company a market value of $462 million.
Krispy Kreme’s strong debut comes as money managers grow leery of Internet-related initial public offerings, especially after the recent swoon in the Nasdaq composite index.
“If a company like Krispy Kreme is able to compete for market attention, investors are looking equally to financials as to the story,” said Jim Oberweis Jr., a portfolio manager at Oberweis Asset Management in North Aurora, Ill. “It’s a return to more rational investing.”
Investors are putting a premium on Krispy Kreme’s future growth, however. The stock is trading at 78 times the company’s earnings per share for the year ended Jan. 30, based on the number of shares outstanding after the IPO. By comparison, the companies that comprise the Standard & Poor’s food index, which includes H.J. Heinz Co. (HNZ), are trading at an average price-to-earnings multiple of about 23.
Krispy Kreme is “probably up too much,” Cobb said. Investors’ “emotional swings have been so dramatic over the past two to three weeks” because of the Nasdaq rout that they’re willing to snap up “something new and different” from an Internet IPO, he added.
Krispy Kreme, which has a sort of cult following among its fans, has defied the trend among food-related offerings in recent years.
Del Monte Foods Co. (DLM), which went public last year, and Log Cabin syrup maker Aurora Foods Inc. (AOR), which came out in 1998, now trade below their offer prices.
An exception whose sustained performance might give Krispy Kreme shareholders hope is P.F. Chang’s China Bistro Inc. (PFCB), which has surged 158% to $31 since its December 1998 offering.
Elsewhere in the IPO market Wednesday, MetLife and three other new stocks rose. New York-based MetLife, which raised $2.9 billion at its IPO, gained $1.25 to $15.50.
The 9% rise was considered solid after such a huge deal.
Oratec Inc. (OTEC), which makes medical devices, zoomed $11.63 to $25.63 after pricing 4 million shares at $14, within the Menlo Park, Calif., company’s expected range.
Cupertino, Calif.-based Vyyo Inc. (VYYO), which makes equipment for wireless Internet connections, climbed $6.75 to $20.25, while Ulticom Inc. (ULCM), a Mt. Laurel, N.J.-based seller of software to support wireless e-mail and text messages, jumped $7 to $20.
“Today was an affirmation that many of the deals on the calendar can probably come public,” said David Menlow, president of IPOfinancial.com. “These deals are apparently shrugging off the dynamics in the marketplace.”
As the Nasdaq, home to many new companies and more than half of this year’s new issuers, sank in recent days, at least six companies put off sale plans.
