Investors Appear Satisfied With Papa John's International, Inc.'s (NASDAQ:PZZA) Prospects As Shares Rocket 30%

Those holding Papa John's International, Inc. (NASDAQ:PZZA) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Papa John's International's price-to-earnings (or "P/E") ratio of 16.7x is worth a mention when the median P/E in the United States is similar at about 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Papa John's International as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Papa John's International

Keen to find out how analysts think Papa John's International's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For Papa John's International?

There's an inherent assumption that a company should be matching the market for P/E ratios like Papa John's International's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 22%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 11% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why Papa John's International is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Papa John's International appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Papa John's International's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You need to take note of risks, for example - Papa John's International has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.