This Bargain-Basement Stock Just Surged 27.6%. Is It Too Late to Jump In?

While 2025 has been a great year for many stocks, it hasn't been kind to Krispy Kreme (NASDAQ: DNUT). The doughnut company had tumbled from about $10 a share at the start of the year to just $3.26 a share as of Oct. 20.

Since then, though, the stock price has jumped by more than 25%.

Have investors finally decided Krispy Kreme was too cheap to ignore? Could there be further gains ahead for the troubled doughnut maker? Or is something else going on?

Yes, it's still cheap...

Even after Krispy Kreme's recent share price gain, the stock is now sitting just shy of $4 a share. That's down about 60% year to date and down by 77% from its 2024 high.

There's no denying that this stock is cheap. It's currently trading at a price-to-sales ratio of about 0.4, which is much cheaper than most of its peers. Starbucks (NASDAQ: SBUX), for example, trades at a P/S ratio of 2.6, while McDonald's (NYSE: MCD) has a P/S ratio of 8.4.

Even more astonishing is the company's price-to-book ratio, which compares its market cap to its book value, which is the value of the company's total assets minus its liabilities (in other words, what the company is worth on paper today, which may be very different from its expected future value). Krispy Kreme's price-to-book ratio is currently 0.98. When a company's price-to-book value is less than 1, the market is valuing the business at less than the current value of its assets. In theory, that means that if Krispy Kreme went out of business today, and all its assets were liquidated, the shareholders would get more than the current value of their shares.

...for a reason

The thing is, stocks don't trade at this kind of discount unless investors are concerned about the underlying business' future ability to make money. And Krispy Kreme has given investors plenty of reasons to be concerned recently.

The company's second-quarter earnings report was a disaster, with a 13.5% decline in revenue to $379.8 million and an unadjusted net loss of $441.1 million. Even on an adjusted basis, its EBITDA of $20.1 million was down 63.3% from the prior-year period.

Krispy Kreme's management claimed the quarter was an outlier, pointing to asset impairments stemming from the ending of its distribution partnership with McDonald's, which had failed to generate sufficient profits. The drop in revenue largely stemmed from the recently completed sale of its Insomnia Cookies business. However, even after adjusting for those high-impact circumstances, organic revenue still declined -- although only by 0.8%.

Management withdrew its full-year guidance, citing market uncertainty, and now says it intends to "begin recouping profitability," which doesn't really inspire much confidence in the business.

Image source: Getty Images.

Meme stock status

In spite of its poor numbers and uncertain outlook, Krispy Kreme's share price moves have been incredibly erratic thanks to its status as a meme stock. In fact, meme stock trading was the reason for its recent 26% surge in price, which came as posts about the company surged in Reddit channels like r/ShortSqueeze and r/WallStreetBets. Similar surges came in July and September, but quickly fizzled.

If the meme stock traders were trying to force a short squeeze, their efforts seem to have been ineffective. Short interest in the company actually ticked upward after the price jump, indicating that more investors expect the stock to fall from its present value.

If Krispy Kreme weren't such a fickle meme stock, it might actually look attractive from a value perspective. With the problematic McDonald's partnership now off the books and shares trading below book value, a case could be made for the stock as a turnaround play, although I'd prefer to hear some more concrete turnaround plans from management first.

However, Krispy Kreme is a meme stock, and given the recent jumps in both price and short interest, smart long-term investors should probably steer clear of it for now.

John Bromels has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.