Which Pizza Company Should You Own?

When you're hungry and want to order food, the question is tough: which pizzeria should you choose? However, when you have some extra cash and are looking to invest, the question becomes even more difficult: which pizza company should you put your money behind?

The fact that the investment decision is a tough one is a positive for investors, as it means there are several quality choices to pick from. Two of the best public companies that specialize in pizza are Domino's Pizza (NYSE: DPZ  ) and Papa John's International (NASDAQ: PZZA  ) .

Domino's Pizza Logo. Source: Company Facebook

The pizza king
Since the process of deciding whether Domino's or Papa John's pizza is better is too subjective, let's begin by discovering which pizza is more popular. For this we turn to social media. On Facebook, Domino's Pizza has approximately 9.1 million fans while Papa John's has approximately 2.7 million fans. On Twitter, the results are a bit closer, although Domino's still leads with 490,000 followers versus Papa John's 183,000. So, clearly, the Domino's Pizza brand is more popular at this time.

For comparison, the Pizza Hut brand, which is a part of global restaurant company Yum! Brands (NYSE: YUM  ) , has approximately 11.2 million Facebook fans and 743 Twitter followers. What this tells us is that the popularity of the three pizza brands probably has more to do with each respective company's reach than it does with actual quality of product.

It is no coincidence that the largest company, Yum! Brands, with a market capitalization of $33.1 billion, has the most fans and the smallest company, Papa John's, with a market cap of $2.2 billion, has the fewest. Domino's, with a market cap of only $4.4 billion, has almost as many fans as Pizza Hut, which is impressive in the context of company size.

Industry growth leader
Both companies have grown well over the years, which is why Domino's and Papa John's stocks have appreciated roughly 64% and 100%, respectively, in the last year alone. The following are growth projections for both companies in 2014:

Company Revenue growth 2014 EPS Growth 2014
Domino's 5.5% 15.9%
Papa John's 8.3% 11.6%

The data above shows that each company is expected to excel in a particular area of growth. Papa John's is projected to grow revenue much faster, while Domino's is projected to grow earnings per share much faster. However, both companies are expected to grow at solid rates this year.

Additionally, forward-looking valuations for Domino's and Papa John's are comparable. The former has a forward P/E of 24.2, while the latter has a slightly more expensive forward P/E of 26.4.

Also worth mentioning is that both companies pay solid dividends. However, Domino's leads slightly in this regard with a dividend of $1, equal to a yield of 1.3%, compared to Papa John's dividend of $0.50, equal to a yield of 1%.

Source: Company Facebook

Growth drivers
For Domino's, after having successfully rebranded its pizza products and introduced digital orders, the company is now very much focused on international growth. A look at the company's most recent store count projections for international markets shows just how robust potential growth is.

The company sees potential for 1,100 locations in United Kingdom, which is an increase of 43% over its current count of 771 restaurants. In India, the company sees even more potential, as it expects it can sustain 1,200 locations, an increase of 77% from its current count of 677. Meanwhile, in France, Domino's is projecting massive growth in stores, as it expects to grow its current count of 227 up to 850, which would represent a staggering increase of 274%.

Papa John's is still very much focused on increasing market share domestically. To this end, management is busy making progress on the branding/marketing front as well as the new product front.

Papa John's recently hired a new marketing agency, Grey, to revamp its entire advertising campaign, including television and social media. The company's well-known partnership with NFL legend Peyton Manning, who owns 25 Papa John's franchises in Denver, is one way in which the pizza brand has excelled in brand awareness in the past.

Additionally, the company is set to introduce new products in 2014 and has already released the double cheeseburger pizza this year.

However, Papa John's also has its eyes on store count expansion. In the company's recent earnings release, Founder and CEO John Schnatter explained, "Today we are approaching 4,500 restaurants globally, with a strong global development pipeline with agreements in place to open approximately 1,200 restaurants over the next six years. I'm very excited about the future of our brand worldwide."

Domino's Pizza. Source: Company Facebook

Bottom line
Both Domino's and Papa John's appear to be viable long-term growth investments in the restaurant industry. Both have grown well in the past and are projected to continue doing so in the future.

However, Domino's seems like the more reliable investment going forward considering the company is already well on its way to expanding internationally. Management's bold and aggressive estimates for future store growth are impressive and mean continued growth is almost assured barring any global slowdown in growth.

Can Domino's and Papa John's help you retire rich?
With shares of Domino's up over 1,000% and Papa John's up almost 400% in the last five years, both have been great buy and hold stocks. It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

 


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2871027, ~/Articles/ArticleHandler.aspx, 11/23/2014 5:30:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement