With a daily gain of 3.12% and a three-month gain of 9.41%, Papa John's International Inc (PZZA, Financial) has been a topic of interest among investors. The company's Earnings Per Share (EPS) stand at 2.08, sparking questions about whether the stock is modestly undervalued. This article provides a comprehensive valuation analysis to answer this question. Keep reading to uncover the intrinsic value of Papa John's International (PZZA).
A Snapshot of Papa John's International Inc (PZZA, Financial)
Papa John's International Inc (PZZA) is a significant player in the global quick-service restaurant (QSR) pizza market. As of the end of 2022, the company had more than 5,700 restaurants across nearly 50 countries. Papa John's International operates predominantly through franchises, owning just under 10% of its restaurants. Its revenue streams include franchise royalties, sales of pizza and related products at its company-owned stores, and sales from its commissary supply chain. The company ranks as the third-largest limited-service pizza chain in the U.S. and fourth-largest globally, with a substantial presence in the U.K., China, South Korea, and Chile.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Applying the GF Value to Papa John's International (PZZA, Financial)
Based on the GuruFocus Value calculation, Papa John's International (PZZA) stock is estimated to be modestly undervalued. The stock's current price is $77.26 per share, with a market cap of $2.50 billion. As the company is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Evaluating the Financial Strength of Papa John's International (PZZA, Financial)
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide valuable insights into a company's financial strength. Papa John's International has a cash-to-debt ratio of 0.04, which is lower than 88.86% of 350 companies in the Restaurants industry. The overall financial strength of Papa John's International is rated 5 out of 10, indicating a fair financial condition.
Assessing the Profitability and Growth of Papa John's International (PZZA, Financial)
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Papa John's International has been profitable 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $2.10 billion and Earnings Per Share (EPS) of $2.08. Its operating margin is 6.02%, which ranks better than 64.76% of 349 companies in the Restaurants industry. Overall, GuruFocus ranks the profitability of Papa John's International at 8 out of 10, indicating strong profitability.
Growth is a significant factor in a company's valuation. The faster a company is growing, the more likely it is to create value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Papa John's International is 4.8%, which ranks better than 70.69% of 331 companies in the Restaurants industry. The 3-year average EBITDA growth rate is 25.1%, which ranks better than 79.5% of 278 companies in the Restaurants industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Papa John's International's ROIC is 14.41, and its WACC is 9.24.
Conclusion
Overall, Papa John's International (PZZA, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 79.5% of 278 companies in the Restaurants industry. To learn more about Papa John's International stock, you can check out its 30-Year Financials here.
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