Krispy Kreme Inc.’s year of going viral gained a brief momentum spurt Wednesday from an unexpected influencer — FBI Director Kash Patel.
Patel was facing a wide-ranging presentation before the U.S. House Judiciary committee that ventured into a discussion of stock investments by federal officials, including White House officials and members of Congress.
Federal employees can trade stocks, but are subject to investment disclosure and ethics requirements.
Patel purchased betwen $15,000 and $50,000 worth of Krispy Kreme shares on May 9, according to the federal Office of Government Ethics.
Patel cited Krispy Kreme as one of his investments that he considered as a “good buy,” along with ON Semiconductor.
“Generally speaking, before I got this job, I was trading stocks, but not a lot like most people,” Patel said. “I just follow certain industries, and I thought they would be a good investment.”
Within minutes of Patel’s comments, Krispy Kreme’s share price jumped as much as 11.5%, only to trend back down to close up just 0.96% at $3.26 a share.
The stock investment topic came up during a conversation with U.S. Rep. Joe Neguse, D-Colo., a sponsor of legislation that would prohibit members of Congress from trading stocks.
The 52-week share price range for Krispy Kreme is $2.50 to $12.68. The share price has been below $10 since Jan. 2.
When it comes to Krispy Kreme, its share price has been rocked by several recent developments:
* The abrupt ending of its breakfast menu partnership with McDonald’s due to lower consumer demand;
* Being subject to a major hacking attack that affected at least 161,676 individuals, including at least 19,665 North Carolinians;
* Withdrawing its fiscal 2025 financial guidance and ending its quarterly dividend; and
* Facing an expected wave of federal lawsuits accusing the company of misleading investors with its recent financial performance.
The lawsuits tend to claim that because of the declining sales that the McDonald’s partnership was not producing a profit for Krispy Kreme.
The lawsuit claims Krispy Kreme’s share price “traded at artificially inflated prices” during the potential class-action time period.
Meme stock
The recent setbacks in the share price has shifted Krispy Kreme’s stock into the dicey investment category known as the “meme zone.”
Whether it’s good or bad news depends on not only the eye of the beholder, but where they are getting their information.
According to Investopedia, a meme stock refers to the shares of a company “that have gained viral popularity due to heightened social media sentiment,” but also are being overlooked or even frowned upon by investors.
Meme stocks often have heavier discourse and analysis in discussion threads on websites, such as Reddit, and posts on platforms such as X (formerly Twitter) and Facebook.
The share price jumped as much as 40% on July 23 with no significant developments to spur the reaction.
“Meme stock status can be beneficial to a company if they want to issue new stock,” Bankrate.com analyst Greg McBride said.
“But this window can close quickly so it pays to act fast.”
Analysts’ perspectives
JPMorgan Chase & Co. analyst Rahul Krotthapalli issued an investor report on Aug. 27 in which he downgraded his rating on Krispy Kreme’s shares to “underweight” from “neutral.”
Perhaps most notably is Krotthapalli continuation of not providing a share-price target.
“Shares have vastly underperformed since the July 2021 initial public offering at $17,” Krotthapalli wrote.
“Recent profitability hit was notable from major costs associated with launch of (now canceled rollout) delivered-fresh-daily coverage to support the McDonald’s system, and eventually other national accounts,” Krotthapalli wrote.
“This disruption led to the company being in survivor mode, including the sale of various store assets around the world and an attempted shift to third-party delivery to reduce costs and operational complexity.”
Seeking Alpha analyst Pedro Goulart projects Krispy Kreme’s share price rising to the $4.10 to $4.50 range.
“Marketing will be less focused on innovation and will concentrate on the original glazed, and the reasons are simple,” Goulart said.
“It’s the best-selling product, has the highest margin and is usually sold by the dozen.”
Citing the restructuring initiative, Goulart said the results “is expected to be a more profitable company with lower capital needs.”
rcraver@wsjournal.com
336-727-7376
@rcraverWSJ
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