At US$51.63, Is It Time To Put Papa John's International, Inc. (NASDAQ:PZZA) On Your Watch List?

Simply Wall St · 10/16 10:29

Papa John's International, Inc. (NASDAQ:PZZA), is not the largest company out there, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today we will analyse the most recent data on Papa John's International’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Papa John's International

Is Papa John's International Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Papa John's International’s ratio of 24.47x is trading slightly above its industry peers’ ratio of 22.8x, which means if you buy Papa John's International today, you’d be paying a relatively reasonable price for it. And if you believe that Papa John's International should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Papa John's International’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Papa John's International look like?

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NasdaqGS:PZZA Earnings and Revenue Growth October 16th 2024

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 60% over the next couple of years, the future seems bright for Papa John's International. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in PZZA’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at PZZA? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on PZZA, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PZZA, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Papa John's International at this point in time. For example, Papa John's International has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

If you are no longer interested in Papa John's International, you can use our free platform to see our list of over 50 other stocks with a high growth potential.