Finally, Papa John’s Int’l, Inc. (NASDAQ:PZZA) was rated number one among all national pizza chains by the American Customer Satisfaction Index (ACSI) due to superior quality pizzas and great customer service. There is a positive correlation between customer satisfaction, sales and ultimately stock price. In conclusion, it would make sense that customers are attracted to the pizzeria. However, investors should delve into the next earnings report for signs of revenue growth.
In brief, Papa John’s Int’l, Inc. (NASDAQ:PZZA) offers a great investment prospectus and it should be considered as a long position in a growth-oriented portfolio.
Comparing apples to apples
One last ticker that deserves mentioning is Yum! Brands, Inc. (NYSE:YUM). The company operates Taco Bell, KFC and Pizza Hut. It trades with a P/E of 21.9, slightly below the industry’s average. The company posted decreasing revenue and net income for the three months ending in March. Revenue declined 10% to $2.5 billion, and net income decreased 28% to $33 million.
Yum! Brands, Inc. (NYSE:YUM)’ revenue was severely hit in April and May due to the “Bird Flu” in China. KFC’s same-store sales declined 25% in May and 36% in April. However, the company has countered this by eliminating 1,000 small chicken suppliers to control quality. It has also started TV commercials endorsing food quality. As the bird flu gets under control, revenue from stores in China should recover.
One positive aspect that may drive the company’s sales upward is the expansion strategy in emerging markets. Last year, the company opened 949 stores worldwide, and an expansion in India is underway.
Further, the sales of Taco Bell continue to be the growth driver with 8% growth in the last quarter. The inauguration of new Taco Bell stores may be a key driver in the company’s revenue.
In addition, the company is coming up with novel products that are appealing for consumers. The launch of Doritos Locos Tacos was a success that brought record sales of $375 million last year. The ability of Yum! Brands, Inc. (NYSE:YUM) to realize novel ideas will be another key driver in upbeat revenue.
Finally, the company has paid a dividend since 2004. It was hiked during the third quarter of 2012 by 17% to $0.33 per share. What’s more is its free cash flow does not jeopardize the dividend offer in the near future. The company closed the first quarter of 2013 with free cash flow of $164 million.
In conclusion, the expansion of Yum! Brands, Inc. (NYSE:YUM) to emerging markets such as China and India should be important for growing revenue. Also, the company is bringing novel products that are well received by customers. Finally, investors should continue to expect safe dividends. Solid free cash flow indicates that increments in the dividend payment may be possible.
The Foolish take-home note
Economic conditions have been improving globally. Consequently, customers go out to restaurants more often. These pizza and restaurant companies offer great investments, and they could be bought in a basket to gain exposure to the restaurant sector. They have aggressive expansion strategies that are currently being implemented in China and India, two major emerging markets where potential for profit is huge. For the reasons, I strongly recommend these stocks for your growth-oriented portfolio.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool owns shares of Papa John’s Int’l, Inc. (NASDAQ:PZZA).
The article 3 Stocks to Buy in the Improving Restaurant Sector originally appeared on Fool.com.
Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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