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Papa John's Founder Is Bearish On His Former Company

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Papa John's Founder Is Bearish On His Former Company

Papa John's International, Inc's (NASDAQ: PZZA) founder and former CEO Papa John Schnatter is bearish on the company he founded and thinks it is overvalued at 56 times earnings.

What Happened: Schnatter has given the reasons for his bearish view in a Seeking Alpha article, which was in response to another bearish article.

Schnatter writes that Papa John's had a revenue problem since 2018 and is showing few signs to pull itself out of the doldrums.

He cites a lack of execution and subpar product quality in the last two years as some of the reasons for his view.

He wrote that the company was struggling to correct its sales slide in the first quarter of 2020, with three-year cumulative comps declining 7.2%.

Schnatter calls the recent surge in sales a result of nationwide lockdowns and restrictions that gave a boost to pizza delivery, which gives a false performance about the company in the short term.

Schnatter wrote that the recent gains would "likely fall just as the virus likely will."

As other dining options open, the expectations of a "45% increase in 2021 earnings seems like a stretch."

Schnatter wrote that the stock's earnings PE of 56 is unjustified, and the stock trading at 35 times analyst-projected 2021 earnings seems delusional.

In a manner, the founder of Papa John's is downgrading the stock, calling it overvalued.

Many analysts on Wall Street are bullish on the company, with the most recent price target being $110 by Loop Capital.

Price Action: PZZA shares are up 22.5% year-to-date and closed at $77.37 on Tuesday.

 

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