Can Dunkin' Brands Become A Slam-Dunk Winner?


Market direction is an important ingredient to a stock's success.

That's why IBD recommends that no stock be bought in a market downtrend.

Even stocks that are outperforming the market can become hard to hold in a negative or shaky market.

Dunkin' Brands ( DNKN ) is a recent example. The initial public offering debuted about a year ago. Since then, it has risen 18% while the Nasdaq gained 4% and the S&P 500 3%.

That sounds fantastic.

Yet if you look at Dunkin' Brands' chart since its IPO, none of its breakouts made great progress before beginning to base again. Most recently, the stock cleared a 33.91 buy point in a square-box base; the action also could've been regarded as a bounce off the 50-day moving average.

Dunkin' rose as much as 9% from the 33.91 buy point and then began correcting. It's a comment on this market that the 9% gain out of a breakout looks pretty good compared with most breakouts in recent weeks.

So, Dunkin' has a good excuse for not delivering big gains. The market just isn't providing the best climate for success.

Should the market start providing a consistent tail wind, Dunkin' might be a stock to watch. Look for a breakout from a sound base in strong volume.

On Thursday, Dunkin' showed decent action. The stock rose moderately in above-average volume as it found support at the 50-day line.

The chart action might eventually provide an entry that isn't secondary. On the weekly chart, Dunkin' appears to be in the fourth week of a potential flat base.

Funds have been piling into the stock. In September 2011, 228 funds held 20.4 million shares. In the quarter ended in June, 259 funds held 62.4 million shares.

As a New America article on June 19 pointed out, the company is expanding westward across the U.S. The nearly 100%-franchise business model limits capital requirements and allows faster expansion.

Earnings grew 30%, 36% and 213% in recent quarters. The Street expects 47% EPS growth this year. Revenue growth is so-so. Sales are expected to grow 6% this year.

The dividend yield is 1.8%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: DNKN

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