How Papa John’s Valuation Compares with Peers
Papa John’s forward PE multiple
The entry of McDonald’s (MCD), Chipotle Mexican Grill (CMG), and other players into the delivery business has led to Papa John’s (PZZA) stock price and forward PE multiples falling. As of September 22, Papa John’s was trading at 22.9x compared to 23.9x on August 30.
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From the above graph, we can see that the company is trading below its peers’ multiples. Compared to its peers, Papa John’s margins are on the lower side. Also, the business model the company adopted doesn’t allow it to expand aggressively, leading the company to trade at a lower multiple than its peers. On September 22, Domino’s Pizza (DPZ) and Yum! Brands (YUM) were trading at 30.5x, and 24.7x, respectively.
To drive its same-store sales growth, Papa John’s is focusing on the enhancement of its customers’ experience through digital advancements and improved menu item quality by removing all artificial ingredients from its menu. These initiatives could increase Papa John’s expenses. If the initiatives fail to generate the expected sales, the increased expenditure could pressure the company’s earnings.
For the next four quarters, Wall Street expects Papa John’s to post EPS growth of 13.4%. If the company posts earnings lower than analysts’ estimates, the selling pressure could bring the company’s stock price and valuation multiple down.
Next, we’ll look at analysts’ recommendations and target prices.