Can Dunkin’ Brands Keep Growing?

With shares of Dunkin’ Brands (NASDAQ:DNKN) trading around $37, is DNKN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Dunkin’ Brands owns, operates, and franchises quick service restaurants under the Dunkin’ Donuts and Baskin-Robbins brands worldwide. The products offered by both of its core businesses have been picking up steam as consumers across the globe are enjoying quick and tasty foods. This trend seems to have no end for now so look for Dunkin’ Brands to see increased profits for years to come.

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Head on over to the next page to explore the technical landscape of Dunkin’ Brands’s stock…

T = Technicals on the Stock Chart are Strong

Since its initial public offering in 2011, Dunkin’ Brands stock has seen a magnificent uptrend consisting of higher highs and higher lows. Currently, the stock is resting near all-time highs. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Dunkin’ Brands is trading above its rising key averages which signal a strong price uptrend in the near-term.

DNKN

(Source: Thinkorswim)

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Taking a look at the implied volatility (red) and implied volatility skew levels of Dunkin’ Brands options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Dunkin’ Brands Options

23.15%

50%

56%

What does this mean? This means that investors or traders are buying an average amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of today, there is an average demand from call buyers or sellers and average demand by put buyers or sellers, all neutral over the next two months. To summarize, investors are buying an average amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Excellent Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Dunkin’ Brands’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Dunkin’ Brands look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

520%

333%

-44%

800%

Revenue Growth (Y-O-Y)

-4.04%

5.02%

9.82%

9.45%

Earnings Reaction

2.05%

1.82%

-3.04%

2.68%

Dunkin’ Brands has seen increasing earnings and revenue growth throughout most quarters. From these figures, the markets have been very happy with Dunkin’ Brands’s earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Dunkin’ Brands stock done relative to its peers, Starbucks (NASDAQ:SBUX), Yum! Brands (NYSE:YUM), McDonald’s (NYSE:MCD), and sector?

Dunkin’ Brands

Starbucks

Yum! Brands

McDonald’s

Sector

Year-to-Date Return

10.46%

3.58%

6.73%

10.56%

9.30%

Dunkin’ Brands has been a relative performance leader, year-to-date.

Conclusion

Dunkin’ Brands is profiting from a quick and tasty food trend that is taking the world by storm. The earnings and revenue growth figures that the company has produced have pleased investors who have bid the stock to near all-time highs. Relative to its peers and sector, Dunkin’ Brands has been a performance leader year-to-date. Look for Dunkin’ Brands to continue to OUTPERFORM.

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