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Papa John's has been treading water for the past six months, recording a small return of 3.6% while holding steady at $49.40. The stock also fell short of the S&P 500’s 14.2% gain during that period.
Is now the time to buy Papa John's, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
We're cautious about Papa John's. Here are three reasons why we avoid PZZA and a stock we'd rather own.
Why Is Papa John's Not Exciting?
Founded by the eclectic John “Papa John” Schnatter, Papa John’s (NASDAQ:PZZA) is a globally recognized pizza delivery and carryout chain known for “better ingredients” and “better pizza”.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Regrettably, Papa John’s sales grew at a tepid 5.6% compounded annual growth rate over the last five years. This was below our standard for the restaurant sector.
2. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
Papa John’s demand has been shrinking over the last two years as its same-store sales have averaged 1.3% annual declines.
3. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Papa John’s revenue to stall, a deceleration versus its 5.6% annualized growth for the past five years. This projection doesn't excite us and suggests its offerings will face some demand challenges.
Final Judgment
Papa John's isn’t a terrible business, but it isn’t one of our picks. With its shares lagging the market recently, the stock trades at 20.2x forward price-to-earnings (or $49.40 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward Google, whose cloud computing and YouTube divisions are firing on all cylinders.
Stocks We Like More Than Papa John's
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year - and we’re zeroing in on the stocks that could benefit immensely.