בס״ד

Papa John’s Arrives Burnt! Shareholders Cheesed Off! (PZZA)

Posted on October 18, 2021

We’re ordering up a gourmet trade for you today, with all the risk/reward favorability you demand from your local boutique pizza maker.

And we don’t scrimp on toppings!

Papa John’s International Inc. (NASDAQ:PZZA) is among the world’s largest dough-flippers.  With a market cap of $4.5 billion, not many can hold a pepperoni to PZZA’s clout in the junk-food arena.

That said, the company’s numbers are pathetic.

It’s dripping all over my arms!

Fundamentally, we have some ridiculous goings-on –

  • To begin, the stock carries NO P/E (i.e., has no earnings),
  • Pays a dividend of 1.14% (but for how long?),
  • Has no Price to Book ratio (i.e. no Book Value),
  • Saw Q/Q earnings DROP a whopping 577.80%,
  • And perhaps most poignantly, insiders saw the whole damn carnival coming, and over the last half year sold 65.66% of their holdings for a fancy payday of $80 million!

Putting The Boots to The Pie-Makers

Papa John’s – like many other bricks and mortar retail operators – also has a staffing issue.

Public policy has created a systemic absurdity whereby it’s currently more lucrative for Joe College to collect a government handout for NOT working than to go find a low-paying job like those on offer at his local pizzeria.

The company wants to open more franchises, but finding workers is a huge challenge.  And that may dent forecasts far more than most are reckoning.

Same store sales declined last quarter on the back of reduced operating hours (i.e. no workers) for the first time in a decade!

And that bodes ill for the stock.

Take a look at the daily chart –

Bad news technicals all-round –

  1. Beginning with an overbought RSI indication in July (circled, in red), a negative signal whenever it appears, that led to…
  2. A steep contraction in buying momentum, as seen in the negative divergence of RSI and MACD against price (green arrows).
  3. Both RSI and MACD are now sub-waterline (in purple).  MACD will actually submerge following today’s session, at which point one should expect technical programs to begin selling in earnest.
  4. As to price, we see a four month trend channel (in red) break down roughly twelve sessions back,
  5. The short-term moving average (in blue) roll over some six sessions hence, and
  6. Price set to open the week without a grip on that same short-term MA.
  7. Failing a strong spike higher to roughly 130, that would put next support at the 137 DMA, currently at $110.30 and rising.

And it’s to that level precisely that we’re aiming our trade.

Like this –

A Jew and His Money recommends you consider selling the PZZA November 19th 115/120 CALL spread* for a credit of $2.90 (9.90/7.00) and buying the PZZA November 19th 120/110 PUT spread** for $3.55 (5.10/1.55).  Total debit on the trade is $0.65.

[*Sell the 115 CALL and buy the 120 CALL.  **Buy the 120 PUT and sell the 110 PUT]

Rationale: we like the idea of pulling in $9.35 on an outlay of just $0.65 (our maximum gain).

And while our downside maximum is $5.65 (difference between the CALL strikes plus the initial debit), anything short of the CDC announcing that pizza will cure Covid just won’t do.

This is a stock who’s weary, who’s insiders feel it, whose fundamentals and technicals have lost all their juicy cheese flavor, and who’s bound for a fall.

May the G-d of Israel be with us.

With kind regards,

Hugh L. O’Haynew

 

Leave a Reply

Your email address will not be published.