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Why Krispy Kreme Doughnuts Is Worth $9 Per Share

FY2016 P/E of 31- and not in the low 20ies as perceived by the market because of tax shields.

Expensive FY2016 EV/EBITDA of 16 - EV/EBITDA of 10 in four years in the best case.

Current sell-side price targets are based on aggressive assumptions and screwed equity discount rates.

The risk/return tradeoff of being invested in this stock is unjustified.

KKDs current valuation is the consequence of the management's success in terms of unit growth, margin expansion and positive comps over the past few years. KKDs operational improvements are undeniable.

However, its current valuation is ridicolous when taking into account the company's sources of free cash flow to equity (FCFE), what earnings are adjusted for to boost EPS and how the market has ignored the business' potential risks. In the following analysis, I will illustrate why KKD is cleary a short.

Valuation Methodology

In the process of building my valuation model I decided to use very optimistic assumptions in terms of system wide unit growth, same store sales growth and margin expansion from 2016 to 2019.

This is to illustrate the nonsensical extend of KKDs current valuation. Despite my bullish assumptions (management guidance or better), KKDs stock is worth $11.50 at most and in addition, it faces enormous downside risks.

Source: Own projections based on management guidance and due diligence

Source: SEC filings for years 2014 & 2015 & Projections based on assumptions outlined in the previous table

The market is relying on P/E ratios as...