Before I discuss the biggest problem facing Papa John's (NASDAQ:PZZA), let's quickly review the company's second-quarter earnings results:

  • Q2 revenue grew 10.6% year over year, on a 2.4% increase in domestic comps.
  • Profits rose 17% to $0.27 per share, excluding the loss from the BIBP cheese purchasing entity.
  • Free cash flow turned in the best performance of all. Rising cash flow and falling capital expenditures added up to a 35% improvement in the first half -- $13.2 million in cash profits.

Sounds tasty
All in all, that's a decent quarter, especially when you consider the massive increases in commodity costs that some say are ruining the restaurant biz. Whether you're invested in Domino's (NYSE:DPZ),  Panera (NASDAQ:PNRA), Yum! Brands' (NYSE:YUM) Pizza Hut, or Papa, the spiraling costs of cheese, wheat, and other wholesome foodstuffs are mugging you for your lunch money.

The same goes for non-restaurateurs in the food industry. PepsiCo (NYSE:PEP), General Mills (NYSE:GIS), and Kraft (NYSE:KFT) are all praying for the day this madness will end. Thus, I'm glad to see Papa reporting any profits growth whatsoever this week, considering the "brutal commodity and consumer environment" (Papa's words, not mine) in which it operates.

Now that we've got that out of the way, let's move on to the crust of the dilemma for PJ's shareholders: The middle of a brutal economy is exactly the wrong time to be wasting money.

Papa spends the kids' inheritance
Papa John's has been buying back shares even faster than it issues new ones via stock options (and folks, that's fast -- 50,000 shares so far this year). So far, it's spent $27.2 million on more than 1 million shares, at an average cost of $26.59 apiece.

Management will no doubt argue that because the shares currently sell for 9% more than that average price, this was a good idea. It wasn't -- and still isn't. At 30 times trailing earnings, Papa is wildly overpriced versus consensus estimates for 12% long-term growth. Even a 9% discount on "wildly overpriced" is no bargain.

It's time to stop squandering your investors' inheritance, Papa.

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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.