Tuesday, October 13, 2009

Krispy Kreme: A Cautionary Tale

This article about Krispy Kreme, about McDonalds, about investing ... is full of "just plain common sense."

The tragedy of Krispy Kreme

From the article:
Krispy Kreme stock hit a high of about $49 in 2003. Then it started on a long downward spiral, losing about 90% of its value.

This company had problems that had nothing to do with its doughnut recipe. It over-expanded and took on crushing debt. There were allegations of management misconduct. Some franchises went bankrupt. Competition was fierce in the cheap eats category. More people started consuming healthy foods.

The company even got some good press recently, if you want to call it that. A new junk-food craze involves a bacon cheeseburger sandwiched between two Krispy Kremes (Original Glazed). It weighs in at 1,500 calories, give or take a few.

So, taking the common sense investing strategy to its illogical conclusion, what about McDonald’s (MCD)?

You hate it, right? Everybody says they do. Nutritionists condemn it as a major cause of the American obesity crisis. Fat teens have tried to sue it for damages. French farmers demonstrated when it started expanding its presence there. In India, people rioted -- all because of a little fib about what those French fries were fried in.

McDonald’s will announce its latest quarterly earnings on October 22, when it's expected to report earnings of $1.10 per share on revenues of $6.09 billion. The company’s sales grew 4.5% last year.

... the common sense investing strategy ... Forget about everything you understand, think is new or wonderful, or ought to take the world by storm.

Instead, watch what everybody else is doing.

Pretty soon, what they’ll be doing at The Louvre in Paris is eating at the city’s newest McDonald’s restaurant. They probably needed one because those on the nearby Rue de Rivoli and Champs Elysee are always overcrowded.

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1 comment:

Queen of Wands said...

Good grief!