Can Your Portfolio Run on Dunkin’?

Almost two full years after its IPO, Dunkin’ Brands’ (NASDAQ:DNKN) share price continues to climb. Investors have been hungry for Dunkin’ Brands shares because of its high growth prospects. Dunkin’ Brands has been a small cap darling over the past year, but can it make good on its growth promises? Let’s use our CHEAT SHEET investing framework to decide whether Dunkin’ Brands is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.

C = Catalysts for the Stock’s Growth 

Dunkin’ Brands announced another strong quarter back in April. Revenues rose 6.2 percent from the previous year’s quarter, while earnings increased 5 percent and same-store sales improved slightly. Dunkin’ has benefitted from higher growth in the quick-service restaurant industry—expected to grow 4.9 percent in 2013 according to the National Restaurant Association. Additionally, higher ticket prices due to a more diversified menu offered increased revenues, as did the increase in the total number of restaurants, which surpassed 17,500 this quarter.

Dunkin’ is mostly concentrated in the Northeast, but has had its eyes on the West since it went public. There’s just one Dunkin’ store per one million people out West—an area which the company hopes to open around 700 stores by the end of 2013. The company has also become active in the consumer packaged goods space by introducing its K-Cups to major grocery stores. Baskin-Robbins, which represents a quarter of Dunkin’ Brands’ revenues has struggled domestically, but thrived internationally; however, the ice cream industry is very volatile and Baskin-Robbins certainly presents some variability to overall business operations moving forward. Dunkin’ Brands already has a significant presence overseas, but future growth is uncertain as big players like McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) continue to grow their international operations.