We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Papa John’s International, Inc. (NASDAQ:PZZA) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A family gathering around a delivery pizza box in the comfort of their own home.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in 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).
Papa John’s International, Inc. (NASDAQ:PZZA)
Number of Hedge Fund Holders: 21
Papa John’s International, Inc. (NASDAQ:PZZA) is an American pizza chain that operates over 5,900 restaurants across 50 countries and territories, most of which are franchised outlets. It is one of the best fast food stocks to invest in right now, with 21 hedge funds tracked by Insider Monkey, holding a stake in the company as of Q2 2024.
Papa John’s International, Inc. (NASDAQ:PZZA) reported mixed results during its second quarter of the year. Live restaurant sales dropped 0.7% to $1.2 billion, driven by a 4% dip in North American comparable sales. Total revenue for Q2 was at $507.9 million, decreasing 1.3% year-over-year, primarily because of an $8.8 million decrease in commissary revenues in North America, fueled by lower transaction volumes and commodity prices.
Operating income was $28.2 million, down 19.2% from the same period in 2023. Adjusted operating income for the quarter stood at $38.4 million, increasing 4% year-over-year. The variance was due to international restructuring costs in the United Kingdom and non-cash impairment charges related to assets at certain domestic restaurants. Papa John’s International, Inc. (NASDAQ:PZZA)’s EPS for Q2 was logged at $0.37, falling below expectations of 51 cents per share.
Given the situation, Papa John’s International, Inc. (NASDAQ:PZZA) expects sales to remain under pressure throughout the third quarter, with sequential improvements anticipated starting Q4, driven by seasonal demand. Despite a challenging environment, there are still enough reasons to be bullish on the stock.
That said, international sales grew 3% during Q2, signifying positive trends overseas, excluding the Middle East. The restaurant chain plans on opening over 100 new outlets in fiscal year 2024. It is also closing down underperforming restaurants, to strengthen the franchisee base and enhance profitability. The management is also committed to investing in menu innovation and digital platforms to retain existing and attract new customers.
Wall Street analysts hold a Buy rating on Papa John’s International, Inc. (NASDAQ:PZZA). The stock has a median share price upside potential of 7.55% based on projections from 14 analysts.
Overall, PZZA ranks 9th among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an 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.