Krispy Kreme Is Getting Some Meme Investor Love. How Should You Play DNUT Stock Here?
Krispy Kreme (DNUT) shares opened roughly 40% higher today as meme stock enthusiasts shifted focus from the likes of Opendoor (OPEN) and Kohl’s (KSS) to the doughnut company.
According to multiple sources, more than 30% of DNUT’s float is currently sold short, making it a prime candidate for a short squeeze.
While Krispy Kreme stock has pared back some of its intraday gains in recent hours, at one point, it was seen trading well over 100% up versus its year-to-date low set in late June.
Why Is It Risky to Chase the Meme Stock Rally in Krispy Kreme Stock?
The meme stock frenzy in DNUT shares offered lucrative returns to investors this morning, but chasing that momentum now may prove a textbook case of trying to catch a falling knife, according to Daniela Sabin Hathorn – a Capital.com analyst.
“The risks are just as stark as the rewards,” she write in a research note today, adding retail driven rallies like the one in Krispy Kreme stock on Wednesday are often “disconnected from fundamentals” and, therefore, run the risk of reversing just as quickly.
In short, Hathorn recommends accepting the ship has already sailed instead of initiating a position in the food company on the pullback – hoping another short squeeze may materialize in it in the coming days.
Sinking Revenue Remains an Overhang for DNUT Shares
Investors should practice caution in owning Krispy Kreme shares amid ongoing speculation also because the company’s financials remain deeply challenged.
In its latest reported quarter, the Charlotte-headquartered firm generated roughly $375 million in revenue, down a more-than-expected 15% on a year-over-year basis.
Additionally, Krispy Kreme continued to burn cash, losing about $0.05 on a per-share basis in its fiscal Q1.
Krispy Kreme Is Trading Well Below the Street’s Mean Target
Despite thin financials and risks related to the company’s newly earned meme stock status, Wall Street analysts believe DNUT shares have significant room to the upside from current levels.
While the consensus rating on Krispy Kreme stock sits at “Hold” only, the mean target of roughly $6.33 indicates potential upside of more than 45% from here.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.