Donuts. Is there anything they can’t do? –Homer Simpson
Does anybody else think it’s weird that one of the most successful recent IPOs is Dunkin’ Donuts? When I saw it was going public I thought, “Well, Homer Simpson might love this but as an investor I am experiencing a certain sense of donut deja vu.”
I seem to remember that one of the last IPOs out of the gate before the market exploded in the early 2000’s was from Krispy Kreme. The stock opened high in 2001 and rose like puff pastry, reaching serious heights among its Internet high flying peers. It was touted as the investor “antidote” to those companies that were still viewed suspiciously back in the year 2001 when the Internet’s business models were still very much a work in progress. Then the Krispy Kreme stock crashed to the ground, leaving investors up to their muffin-tops in crumbs. Today it trades at a market cap of $555 million (down from it’s max at over $2.5 billion).
So fast forward 10 years and the hottest IPO du jour is Dunkin Donuts. Cops everywhere are psyched. Donuts are back, baby! The Company went public July 27th, 2011 and the stock vaulted upwards, like a glazed donut on its way to Homer Simpson’s mouth. The company now commands a market capitalization of around $2.4 million or so and is touted as….wait for it…the antidote to Internet IPOs whose business models have clearly evolved but which still raise some suspicion in traditional investor quarters, or at least warrant portfolio balancing.
I admit that I am not at all educated enough about Dunkin Donuts to say whether it is or isn’t a great company or great investment. It may be the best stock opportunity since Apple Computer, which itself has had its ups and downs over the years but now seems to defy gravity. My experience with Dunkin Donuts is limited to furtive rest stop indulgences when traveling on the east coast. Last time I was there I spied a Boston Cream Pie Donut on the menu (it is actually called a Boston KREME Pie Donut–apparently the donut dictionary insists on that spelling); I asked the clerk what they had in them and he told me, “you know…Boston Kreme Pie.” Gotta love a guy who tells it like it is.
But it just gives me the willies (the crullers?) that there is a very frothy IPO market of late and that the star of the moment (the Captain America star-shaped donut, as it were) bears a sugary-sweet resemblance to the poster fritter for IPO excess and disappointment. Again, the business fundamentals may be fantastic, but it is really important that this time we are getting the donut and not the hole. There is much talk of an IPO bubble these days, but let’s just hope that bubble doesn’t have a kreme filling when and if it bursts–it’s very hard to clean out of the carpet.
The fact that I spend all of my investment time focused on healthcare augments my discomfort over the drive for donut dollars. In the Health section of the newspaper you read all about how diabetes is killing our nation, physically and financially, while on the Finance page you are learning that donuts are the ticket to financial nirvana. So does that mean you have to choose between health or wealth? You can have the jelly, but you’ll be stuck with the belly? Dr. Oz is out there telling people to eat their fruits and vegetables while financial analysts are all but quoting our friend Homer, who once said, “This donut has purple in the middle; purple is a fruit.”
Dunkin’ Donuts motto is, “Donuts; Making People Happy Since 1950.” I guess it’s a free country so you can get happy either by ingesting them or investing in them. Either way, let’s hope the accompanying coffee is bubble free.