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After 26% Rally in Papa John’s, Short Sellers Target Stock

Published on Nov 4 2015 12:52 PM in Restaurant tagged: pappa johns

After 26% Rally in Papa John’s, Short Sellers Target Stock

Papa John’s International’s shares have rallied 26 per cent in 2015 on the pizza chain’s surging profit growth and technological advancements, making it one of the richest restaurant stocks around. An increasing number of short sellers don’t think that will last.

The number of shares being shorted - a bet that the stock will fall - has risen to five per cent of those outstanding, near the highest level in six years, according to data compiled by Bloomberg and Markit. The investors are wagering that Papa John’s will have a tough time sustaining its lofty price-to- earnings ratio of 36.4. That valuation puts it behind only Starbucks and Chipotle Mexican Grill among big North American restaurant chains.

The broader question is whether Papa John’s can keep up the pace of sales and profit growth in an increasingly crowded pizza market. The Louisville, Kentucky-based chain has attracted customers in recent years by touting natural ingredients and online-ordering features. But competition is getting stiffer. Papa John’s large pizza rivals are improving their technology, and upstarts such as Blaze, Mod and Pieology are expanding quickly, aiming to take Chipotle’s fast-casual approach to food and apply it to pizza.

Papa John’s is the fourth-largest pizza company in the US, with systemwide sales of about $2.67 billion in 2014, according to the research firm Technomic. The company ranks behind Yum! Brands'Pizza Hut, Domino’s Pizza and Little Caesars Enterprises in the industry.

The race to build more sophisticated ordering technology has made pizza chains more efficient. By letting customers pick out their pizza on an app or website, companies can reduce errors and potentially use less labor. Last December, Papa John’s said it was the first of its competitors to generate 50 per cent of its sales through digital channels.

News by Bloomberg, edited by Hospitality Ireland

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