Americans love pizza. Scratch that. Everyone loves pizza. If, by chance, you don’t believe this to be true, simply take a gander at the consistent international growth seen by companies like Papa John’s Int’l, Inc. (NASDAQ:PZZA), Domino’s Pizza, Inc. (NYSE:DPZ), and Yum! Brands, Inc. (NYSE:YUM). The latter owns Pizza Hut (in addition to Taco Bell and KFC.) And Yum! Brands, Inc. (NYSE:YUM) is the market leader in each of those categories. So, yes, that might be a hint that Yum! Brands is likely to be a quality long-term investment. However, while there will be more information on Yum! Brands, Inc. (NYSE:YUM) and Domino’s Pizza, Inc. (NYSE:DPZ), this article will primarily focus on Papa John’s Int’l, Inc. (NASDAQ:PZZA).
Consistent growth
It’s not likely that you would have considered Papa John’s Int’l, Inc. (NASDAQ:PZZA) a household name 10 years ago. That’s because Papa John’s ads weren’t popping up relentlessly during NFL games. Today, according to Turnkey Intelligence, Papa John’s Int’l, Inc. (NASDAQ:PZZA) is the most recognized pizza brand by NFL fans. And according to the American Customer Satisfaction Index, Papa John’s Int’l, Inc. (NASDAQ:PZZA) has ranked number one in customer service among pizza chains in 12 of the past 14 years. However, despite these impressive stats, it’s still “only” the third-largest pizza chain in the world. But, that can also be looked at as a positive, as it indicates that there’s a lot more room to grow.
While all of the companies mentioned in the introduction have seen consistent top and bottom line growth annually, Papa John’s Int’l, Inc. (NASDAQ:PZZA) has been growing the fastest on the top line. It’s easier for Papa John’s to accomplish this feat since it’s the smallest company of the three, sporting a market cap of $1.44 billion, versus market caps of $3.53 billion and $33.09 billion for Domino’s Pizza, Inc. (NYSE:DPZ) and Yum! Brands, respectively.
It should also be pointed out that all three companies delivered profits in the difficult years of 2008 and 2009. This is yet another indication of how much consumers love pizza. It also means that all three companies should be relatively resilient to economic downturns. However, based on historical stock performances, Yum! Brands, Inc. (NYSE:YUM) is the strongest in the resiliency area, as it’s clearly the most diversified as well as the largest.
More football, please … any variety
Papa John’s recently partnered with The Football League in the United Kingdom. With the ability to use The Football League’s online presence for online banners, targeted emails, and promotions via social networking sites, this should act as a growth catalyst for Papa John’s.
Papa John’s has 200 units throughout the United Kingdom, and if this campaign is even half as successful as the U.S. campaign, orders will be placed at an increased pace.
Potential risks
Every time you read about Papa John’s, increased competition is brought up as a concern. But if you really think about it, if competition were going to impact business, it would have happened by now.
Two oft-mentioned threats are a weak macroeconomic environment and increased cheese costs. With regards to the former, Papa John’s should be able to weather any economic storms relatively well, but it wouldn’t be the best resilient play in the space. As stated earlier, that would belong to Yum! Brands. As far as the latter is concerned, cheese prices are volatile. Reacting to moves in cheese costs would likely be unwise, as prices are likely to change quickly. Plus, these increases costs can be made up for in other areas.
Other options
Domino’s Pizza, Inc. (NYSE:DPZ) s has been on a tear. Over the past three years, the stock has appreciated 439%. Domino’s Pizza, Inc. (NYSE:DPZ) continues to expand domestically and internationally. Thanks to menu innovation and effective advertising, traffic has steadily increased. In the second quarter, domestic comps increased 6.7% (5.7% in company-owned units/6.8% in franchise units).
Domino’s also has to deal with increased food costs, but after beating earnings expectations and revenue jumping 10% year over year, it doesn’t look as though it will slow Domino’s Pizza, Inc. (NYSE:DPZ) down much.
Yum! Brands, Inc. (NYSE:YUM) offers the most geographic and brand diversification. The stock suffered late last year and earlier this year due to an investigation of the quality of the chicken used at KFC restaurants in China. Then, just as the company looked to get back on track, a breakout of the Avian flu in China set the stock back again. However, these were both temporary negative events, which often represent the best time to buy. Despite these headwinds, Yum! Brands has bounced back, demonstrating its resiliency.
Conclusion
Barring a stock market collapse, all three stocks should continue to appreciate. Papa John’s and Domino’s should appreciate the fastest, but they also present more downside risk. Since this column focuses on capital preservation as a number one priority, Yum! Brands, Inc. (NYSE:YUM) is the top recommendation for this group.
The article Can Pizza’s Popularity Increase Your Net Worth? originally appeared on Fool.com is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool owns shares of Papa John’s International (NASDAQ:PZZA). Dan 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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