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Unusual Options Volume Suggests Krispy Kreme May Benefit From Normalization Trend

Joshua Enomoto

Published: March 1, 2023 10:43 pm

With fears of COVID-19 fading into the background and as major enterprises are bringing employees back to the office, breakfast favorites like Krispy Kreme (US:DNUT) stand to benefit. In turn, DNUT stock attracted unusual activity in the derivatives market.

CNBC reported on Aug. 27 that  consumers dined out less as skyrocketing inflation weighed heavily on sentiment. However, the business news channel noted that breakfast sales held steady as workers returned to offices, incentivizing them to grab a quick bite or drink.

According to The NPD Group’s food and beverage analyst David Portalatin, the relative affordability of breakfast items helps bolster demand. “For a lot of people, it’s simply a cup of coffee and maybe a specialty coffee that they’re paying a premium price for, but it’s sort of more manageable,” he said.

In addition, CNBC mentioned that doughnut fans are picking up boxes of Krispy Kreme earlier in the day. “People are starting to engage in the doughnut for the office et cetera in the morning time, so we see some growth there,” Krispy Kreme CEO Mike Tattersall said.

Fast forward into the new year, following the close of the Feb. 27 session, Krispy Kreme jumped out as one of the highlights of Fintel’s screener for unusual stock options volume. Specifically, call volume hit 11,929 contracts against put volume measuring only 59. On average, call volume typically hits 225 contracts while put volume reaches 110.

Another factor possibly favoring bullish speculators is relatively high short interest against DNUT stock. According to Fintel, Krispy Kreme’s short interest stands at 13.12% of its float. Further, its short interest ratio is 12.39 days to cover. Also noteworthy is that the stock’s off-exchange short volume ratio pings at 50.42%.

Fundamentally, rising short interest indicates demand among bearish traders to profit from declining valuations. However, excessive short interest could attract the bulls to initiate countervailing positions, a dynamic known as a short squeeze.

Interestingly, data compiled by Fintel indicates that Krispy Kreme’s Short Squeeze Score hit 73.02 out of 100. Per the investment resource, higher numbers indicate a higher risk of a short squeeze relative to its peers, with 50 being the average benchmark.

Notably, in its most recent earnings report for the fourth quarter of 2022, the company posted non-GAAP earnings per share of 11 cents a share, beating analysts’ consensus EPS estimate by a penny. For the full year, 2022, Krispy Kreme posted revenue of $1.53 billion, representing a 10.5% lift from 2021’s result of $1.38 billion.

Meanwhile, the doughnut maker got some good news this week from McDonald’s (US:MCD). The restaurant chain said on Tuesday that it will expand its test of selling Krispy Kreme treats beyond the initial nine Kentucky locations to about 160 spots starting in March.

And in the UK, where Krispy Kreme doughnuts are a popular item sold in service station convenience stores throughout the country, a key retail metric, the so-called Pret index, showed in-store transactions in those locations up an average of 6 percentage points in the week ending Feb. 16.

This article originally appeared on Fintel