Papa John's (NASDAQ:PZZA) stock has doubled over the past 12 months, offering us Fools an important investing lesson: Never discount the power of product innovation.
When I first checked out Papa John's a year ago, I found an enterprise with lagging sales and a saucy valuation that seemed more like pie-in-the-sky hopefulness than sound investing. Sales were sluggish in 2004, with third-quarter domestic comps increasing only 1.2%.
But in its latest third-quarter results, domestic comps increased 3.9% year over year. What's the reason for the dramatic improvement? Product innovation.
The company has attributed a large part of its recent success to what it describes as the most significant product launch in its history. Papa John's began testing a deep-dish pizza possibility back in 2002. The customer response from its test site in Wichita, Kan., foretold good things to come; the recently released Papa's Perfect Pan Pizza has been a hit with pizza lovers across the nation.
A square-shaped pizza, rich new sauce, and Papa's first new crust in 10 years have been a recipe for success. Papa John's just released its fourth-quarter sales report, which shows domestic comps continuing to build on the momentum gained in the previous period, increasing 6.4% year over year.
We've seen the hit-and-miss of product development many times before. Motley Fool Inside Value pick Coca-Cola (NYSE:KO) has been trying to come up with its own winning recipe, introducing a Vanilla Coke option in 2002. The company has pulled the plug on this endeavor, and is now launching a Black Cherry Vanilla Coke.
McDonald's (NYSE:MCD) saw its stock bottom out in early 2003, but investors who sold then missed a golden opportunity. That same year, it launched the highly successful McGriddles breakfast sandwich and began a new campaign to emphasize healthier and better-quality products. These efforts have helped to create roughly a 150% return for investors since the stock hit bottom.
In the face of fierce competition, from Domino's Pizza (NYSE:DPZ) and Yum! Brands' (NYSE:YUM) Pizza Hut on one end to a plethora of local pizza restaurants on the other, Papa John's has been able to distinguish itself through product innovation. With a new pan pizza and tremendous growth opportunities, I wouldn't bet against this Papa.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
