Eatery chains Krispy Kreme Doughnuts (KKD) and Chuy's Holdings (CHUY) have both risen about 6% since Tuesday's close, but their rallies have nothing to do with positive earnings releases or analyst upgrades. Instead, the stocks have popped higher because Standard & Poor's announced plans Tuesday evening to add them to the S&P SmallCap 600 index after today's closing bell.
This means that the SPDR S&P 600 ETF (SLY) and other ETFs and mutual funds that track the S&P small-cap index (or the larger S&P Composite 1500) will all have to add KKD and CHUY to their holdings. Not surprisingly, Krispy Kreme's trading volume topped 6x of its three-month average on Wednesday, while Chuy's volume came in at about 3x normal.
Of course, it remains to be seen whether either stock can hold on to its recent price gains. Great Western Bancorp (GWB) was the last stock to join the S&P 600 SmallCap index, rallying some 5% the day after Standard & Poor's announced the addition on April 11. And so far, GWB remains some 9% higher than it traded at prior to the announcement, beating a roughly 4% rise for S&P SmallCap 600 over the same period
But regardless of what happens next, this Krispy Kreme shareholder sees KKD's addition to the S&P small-cap index as welcome news. Still, it's just icing on the cake (donut?) to what I personally view as Krispy Kreme's great investment story.
Of course, I won't complain if KKD's market capitalization grows to the point where it becomes eligible for the S&P Midcap 400, the next step in Standard & Poor's index hierarchy. But Krispy Kreme has a ways to go before that, as the firm currently has about a $1.1 billion market cap -- some $300 million shy of the S&P MidCap 400's minimum.
Still, I wouldn't rule out anything with Krispy Kreme, a true survivor that's risen from the ashes in the past.