What Happened?
Shares of doughnut chain Krispy Kreme (NASDAQ:DNUT) fell 7.7% in the afternoon session after investors refocused on the company's challenging fundamentals as recent meme-stock enthusiasm appeared to wane. The negative sentiment was fueled by an analyst downgrade from BNP Paribas Exane, which slashed its price target on the stock.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Krispy Kreme? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Krispy Kreme’s shares are very volatile and have had 26 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago when the stock gained 11.2% on the news that it became the latest company swept up in a "meme stock" rally driven by retail investors on social media. The doughnut chain's stock surged without any specific company news to justify the move. Instead, the rally was fueled by a social media frenzy, particularly on platforms like X (formerly Twitter), where retail traders targeted the stock. Krispy Kreme became a prime candidate for this type of activity due to its high short interest, which was reported to be over 28% of its publicly traded shares. This phenomenon, known as a "short squeeze," occurs when a heavily shorted stock's price is driven up, forcing investors who bet against it to buy shares to cover their positions, which in turn pushes the price even higher. The surge happened despite recent negative developments for the company, including disappointing first-quarter earnings and the termination of a partnership with McDonald's.
Krispy Kreme is down 57.8% since the beginning of the year, and at $4.10 per share, it is trading 67% below its 52-week high of $12.42 from November 2024. Investors who bought $1,000 worth of Krispy Kreme’s shares at the IPO in June 2021 would now be looking at an investment worth $195.54.
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