Dear Mr. Berko:

Dear R.P.:

The difference between the optimist and the pessimist is droll. The optimist sees the doughnut, and the pessimist sees the hole. Dunkin’ Brands Group Inc. (DNKN-$24.43), the parent company of Dunkin’ Donuts, went public last July, and it could be a dandy long-term investment. Or maybe not.

DNKN owns, operates and franchises 7,103 Dunkin’ Donuts units in the United States and roughly 3,214 units overseas. As a trained doughnut expert, I rank the Dunkin’ product a solid 8.5 when fresh off the rack and a 7 when it has been sitting for more than two hours.

DNKN doesn’t just do doughnuts; it also owns, operates and franchises Baskin-Robbins ice cream shops, 2,506 of which are in the United States and 4,021 overseas.

There are 123 million shares outstanding. In the past 12 months, DNKN’s 1,200 employees helped management snare $600 million in revenues from royalties and fees, which translated to earnings of 60 cents a share. The stock price is more than 40 times earnings (50 percent higher than Starbucks Corp.), which even for my prejudicial tastes is a bit too high. Of course, 2010 earnings are a major improvement from the 28 cents a share that DNKN reported in 2009.

DNKN has been as aggressive as Starbucks in opening new locations. It has also been aggressive in closing locations that have turned out to be disappointments. Though most Starbucks locations are company-owned, DNKN prefers to franchise; that’s certainly less risky for the company.

So Dunkin’ Donuts relies on private owners to spend the bucks to open new locations, hire employees and develop a local customer base. Of course, DNKN management provides the template, displays, doughnut dough, coffee and ingredients for other gustables such as sandwiches, sodas, bagels, gourmet cakes, flatbreads, hash browns, fudges, personal pizzas, smoothies, lattes, espressos, cappuccinos, cones, etc.

In the next eight or nine years, DNKN could increase its location presence by 50 percent. If management doesn’t go off the deep end, like the knuckleheads at Krispy Kreme Doughnuts Inc. (KKD-$6.59), revenues could rise to about $1 billion, and earnings might rise to the $2 per share level in the next two years.

DNKN has a lot of room to expand, but these projections assume that management has the selling sizzle to select new locations and nudge revenues and earnings higher each year. I don’t have the confidence in management that I have in its product. The company’s drab home page looks like a pair of faded, pre-washed jeans. As I glimpsed through sundry pages of comments, I was disappointed by the lack of enthusiasm for the company, and I wonder if there’s a good reason for it.

But on the plus side, the shares have held up well in a crazy market, and I think there’s a good reason for that, too. So I will recommend that you buy just 200 shares. I’d like to see the stock break above the $28.50 level before owning the other 200 shares.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com