A: Donuts and coffee? What’s not to like?
Investors have been intrigued by shares of Dunkin’ Brands, owner of the Dunkin’ Donuts coffee shops, ever since the company filed to go public in May 2011. Attracted by the company’s loyal consumer following in the East Coast, and the possibility of expansion on the West Coast, investors have had high hopes for the stock.
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COLUMN: Should investors worry about stock market volatility?
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COLUMN: Volatile market has been bad news for IPOs
So far, though, the stock hasn’t given investors much of a jolt. The company sold its stock to initial investors at $19 a share in July 2011. The lucky investors able to buy in at the offering price did rather well, enjoying a 46.6% first day return.
But since that time, the enthusiasm over Dunkin’s stock has subsided a bit. Investors who got the stock at the first-day closing price of $25.18 have seen them languish since, currently trading at roughly $26 a share. Seeing the shares hang in there isn’t necessarily a bad thing, given the beating the broad market took during that time. But still, it’s hardly the home run many investors were probably expecting.
Given the fact Dunkin’ hasn’t been trading very long, it’s impossible to get adequate data to put it through the typical tests considered at Ask Matt. Most individual stocks are evaluated in four different ways in this column, helping investors to test a stock’s fundamentals, valuation, risk and reward payoff. You can see the exhaustive tests stocks are put through at Ask Matt in a previous column on Research in Motion (RIMM).
And there is the challenge for IPO investors. There’s just not much trading history or earnings track record as a public company. As an IPO investor, you’re left to just have faith in the management team and hope that the company’s strategy pans out.
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There are plenty of things to worry about, including the intensifying competition for the breakfast market. Both Starbucks (SBUX) and McDonald’s (MCD) are fierce competitors for the breakfast buck.
If you’re looking to speculate, Dunkin’ has seemed to hold up rather well during the recent downturn. But with very few exceptions, restaurant stocks haven’t proven to be all that great for investors. Other donut stocks, especially Krispy Kreme (KKD), have been downright debacles. It’s hard to build a case for this stock, especially given its short life so far as a public company.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz