Papa John’s International, Inc. (PZZA): The Best Pizza Stock To Buy Now?
We recently compiled a list of the 9 Best Pizza Stocks to Buy Now. In this article, we are going to take a look at where Papa John's International, Inc. (NASDAQ:PZZA) stands against the other pizza stocks.
How's the Pizza Market Doing?
Originating from Italy hundreds of years ago, and spreading across the globe like wildfire ever since, pizza has always been the consumers’ go-to food option, and hence, its market is growing to date. As such, as reported in one of our articles on best pizza stocks to buy, the pizza market is set to experience a CAGR of 4.45% during the period 2024-2032, growing from $148.6 billion in 2023 to $222.5 billion by 2032. Similarly, the frozen pizza segment is also expected to increase during the period 2023-2028, gathering a market size of $5.96 billion during the period, showcasing a CAGR of 4.96%.
The popularity of pizza can be judged from the statistics showing that there are 245,000 pizza restaurants in the world, and around 77,000 restaurants within the U.S. The U.S. itself experienced record-high pizza sales of $46.9 billion in 2022, thanks to over 7,000 units opening up in the eight years up till 2022. This reinforces the fact that the largest pizza chains in the world are based in the U.S. Pizza Hut, one of the biggest pizza brands in the world, is the oldest one, which was founded back in 1958 in Kansas, USA.
What's Cooking in the Industry?
Within the frozen pizza segment, meat toppings dominate the market as it has a share of 56% in sales, while vegetable toppings have a share of 26%. In contrast, cheese toppings are also competing nicely, as it has a 14% share, as reported by media.market.us. DiGiorno, Red Baron, and Totino’s Party Pizza are the top frozen pizza brands with the greatest brand awareness.
The recent trends in the pizza market include rising demand for vegan pizzas (frozen or otherwise); this evolving market of pizza has got is on a roll, as new demands keep popping up for cheese substitutes, all sorts of pepperoni, Mexican style meats like Birria and chorizo, and new topping varieties
What’s new in the industry is the rapid acceleration of technology use in the context of operators, as a survey shows that 748 pizza makers in the U.S. find online ordering the new go-to way of consuming pizzas and that 78.21% of the producers are investing in a great deal to up their brand presence across the internet. The optimism is on the high side as well amongst the pizza makers as most believe in sales growth in the next twelve months.
Thus, certainly, the pizza market is one to grow indefinitely (or at least it should), and hence, to capitalize on this growth, one must know the best pizza stock to buy. So, let’s move on to our list of 9 Best Pizza Stocks to Buy Now.
Methodology
To curate our list of 9 Best Pizza Stocks to Buy Now, we gathered a list of all companies with a significant presence in the pizza industry and related industries of cheese and flour. We then further narrowed them down on the basis of various metrics like institutional ownership, the number of analysts watching the stock, and the overall financial health of respective stocks. We ranked the finest remaining companies by the number of hedge funds that had stake in them as of Q2, 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A family gathering around a delivery pizza box in the comfort of their own home.
Papa John's International, Inc. (NASDAQ:PZZA)
Number of Hedge Fund Holders: 21
Upside Potential: 8.80%
Next on our list of 9 Best Pizza Stocks to Buy Now, we have Papa John's International, Inc. (NASDAQ:PZZA), which was founded in 1984 – almost 4 decades ago. It is the 5th largest pizza chains in the U.S. having more than 5,000 units across the globe.
Papa John's International, Inc. (NASDAQ:PZZA) experienced a decrease of 1.3% in its revenue for Q2 2024. This decrease was attributed to an $8.8 million decrease in the company’s North American commissary revenue, amidst lower sales volumes and prices. The adjusted operating income of the company increased by 4% to $38.4 million due to marketing strategies playing out well, and domestic company-owned restaurants bringing improved margins. As a result, adjusted diluted earnings per share (EPS) increased from $0.59 per share in the same quarter of 2023 to $0.61.
However, free cash flow saw a drastic decrease in the quarter, which is something to worry about, as it fell to $12.8 million in the quarter from $58 million in Q2 2023. While the CAPEX for the quarter was lower, the unfavorable working capital changes and income taxes’ cash payments were the primary reasons for this state of being low on cash. But, not to worry, as the company points towards its cash and borrowing balance worth $260 million under its revolving credit facility.
Papa John's gives out operating income full-year guidance figure of somewhere between $135-$155 million, the higher end of which would mean a growth of 5.4%. Thus, on the back of 15 analysts, the stock is expected to experience price appreciation of 8.8%. Understandably then, hedge funds are also consistently bullish on the stock, with investments worth $64 million by 21 hedge fund holders put into the stock, as of Q2 2024.
Overall PZZA ranks 8th on our list of the best pizza stocks to buy. While we acknowledge the potential of PZZA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than PZZA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.