Why Krispy Kreme Stock Is Skyrocketing (Again) Today
Key Points
Krispy Kreme stock surged as much as 37.7% on Wednesday morning due to coordinated Reddit activity, not business news.
The donut chain's high short interest (over 30% of shares) and low trading volume make it a suitable target for coordinated short-squeeze attempts.
A similar Reddit-driven surge in July saw Krispy Kreme jump 32.5% in two days, only to lose all gains within two weeks.
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Shares of Krispy Kreme (NASDAQ: DNUT) skyrocketed on Wednesday morning, reaching prices not seen since early May. The donut shop operator's stock was up 23.2% at 10:50 a.m. ET, down from an earlier peak of 37.7%. Krispy Kreme did not report business results (the Q3 report will drop in November).
The Frankendough Dozen promotion it announced this morning shouldn't have this kind of market-moving power. Instead, Krispy Kreme investors are attempting to unleash a short squeeze with the usual meme stock tricks.
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The meme stock crowd found a new sugar rush
According to meme stock trackers like YoloStocks, Krispy Kreme posts are kicking up a storm in Reddit channels such as r/pennystocks, r/ShortSqueeze, and r/WallStreetBets -- the typical social media venues for no-news meme stock pushes. Notably, Krispy Kreme is not one of the 10 most-discussed stock tickers in more serious Reddit channels like r/Investing or r/Stocks today.
Typical posts celebrate big wins Krispy Kreme investors made from earlier meme stock moves, or remind people that you only live once -- so take a chance on this no-news situation. Krispy Kreme's stock has more than 30% of its shares on loan to short-sellers and a low average trading volume. With that setup, a quick burst of retail investor purchases can result in quick price spikes, which then prompt short-sellers to cover their bearish positions in a panic.
Image source: Getty Images.
The inevitable crash after the sweet, sweet high
Short-squeeze pushes really do have market-moving power from time to time, including the Reddit-based campaign for Krispy Kreme in late July. The stock jumped 32.5% from July 21 to 23, but the artificial boost didn't last. The gains were gone less than two weeks later.
I don't expect the current surge to stick around for very long, either. Krispy Kreme has some legit business ideas in play, like an international expansion and the aforementioned Halloween-themed promotion. But the stock needs to cool off from this artificially sweetened meme stock surge before I'd even think about buying it.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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