Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Papa John's Sank 12% at the Open Today

By Reuben Gregg Brewer - Updated Feb 25, 2021 at 10:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The pizza maker reported improved revenue and earnings, but investors weren't pleased with the outcome.

What happened

Shares of pizza restaurant Papa John's International (PZZA 1.12%) fell roughly 12% in early trading on Thursday. The big news was the company's earnings, which at first blush look pretty good. But if the market's dour reaction is any indication, they just weren't good enough.

So what

Papa John's top line was higher by 12.5% year over year in the fourth quarter of 2020. Comparable-store sales in the United States rose 13.5%, with international comps up an even more impressive 21.4%. On the bottom line, the restaurant's adjusted earnings were $0.40 per share versus a loss of $0.25 per share in the same stanza of 2019. So far, that seems like a pretty good outcome.  

A man in a uniform delivering pizza to a woman.

Image source: Getty Images.

The problem is that analysts had been expecting earnings to hit $0.46 per share. Investors don't like it when companies fall short of Wall Street estimates. In addition, the revenue growth was down about 5 percentage points sequentially from the third quarter of 2020, with domestic comps off by around 10 percentage points. Missing the analyst call and signs that the boost from increasing takeout orders during the pandemic are compounding the negatives here. It's not shocking that Wall Street's first reaction was pretty negative.  

Now what

Papa John's revenue numbers and domestic comps figures suggest that 2020 may have been a windfall year. With the stock up 64% since its lows in April last year, including today's drop, long-term investors might want to wait and see before jumping aboard. If the slowing sales trends hold, there could be more downside risk. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Papa John's International, Inc. Stock Quote
Papa John's International, Inc.
PZZA
$84.56 (1.12%) $0.94

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.