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Why Papa John’s Stock Is on a Downward Trend

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Oct. 5 2017, Updated 8:09 a.m. ET

Stock performance

After posting a strong 2Q17 earnings report on August 1, 2017, Papa John’s (PZZA) stock rose 9.6% to reach $77.99 on August 2, 2017. Since then, the company’s stock price has fallen 9.5% to close at $70.61 on October 3, 2017.

With rivals such as Chipotle Mexican Grill (CMG), McDonald’s (MCD), and Buffalo Wild Wings (BWLD) testing delivery service, investors could be concerned that pizza companies could lose their dominance in the delivery space. The entry of new players would allow customers to have more choices, which could negatively impact pizza companies’ sales.

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Year-to-date performance

Papa John’s stock has fallen 17.5% since the beginning of 2017. During the same period, Domino’s Pizza (DPZ) and Yum! Brands (YUM) stock prices have returned 27.4% and 16.7%, respectively.

The S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR ETF (XLY) have returned 10.6% and 11.0%, respectively.

Valuation multiple

On October 3, 2017, Papa John’s was trading at a forward PE (price-to-earnings) multiple of 22.2x compared to 23.1x before the announcement of its 2Q17 earnings. On the same day, its peers Domino’s Pizza and Yum! Brands were trading at 31.4x and 24.1x, respectively.

Compared to its peers, Papa John’s margins are on the lower side. Its business model does not allow the company to expand aggressively, which has led the company to trade at a lower multiple than its peers.

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