Problems with Pizza Pizza
When I think of Pizza Pizza, there could be a few reasons why the market doesn’t like it.
First: Minimum wage hike in Ontario from $11 to $14 – hurts the bottom line.
Second: Increased pizza prices – less traffic now.
Third: Payout ratio is 106%.
The minimum wage increase is an external factor and there’s nothing they can do about it. They will have to live with it. To offset higher wages, the stores increased pizza prices. I’m not sure by how much, but they reported less traffic in the stores, but higher amount spent per customer. I think over the time people will get used to higher prices and will continue to buy pizza again. Look at Big Mac! If you compare the two, a slice of pizza with a drink is a much cheaper choice for many teenagers.
As for the payout ratio, company has enough money for a few years to cover the shortfall. I think a few years time-frame is enough to turn this business around, increase sales volume and get the payout ratio below 100%. Since this is a royalty pool, their payout ratio is always around 100%.
My Pizza Pizza Holding
My total position in PZA is now 175 shares and my average cost is $10.83. I’m looking forward to adding more shares of PZA, especially if it continues to trade below $10.
nice to average down but its definately a stock thats out of favour atm. I dont even remember the last time i ordered pizza pizza. They do have the zoos and attractions covered prettywell though.
ReplyDeleteJust seems like so much cheaper competition out there.
like buffett says be greedy when others are fearful. Maybe this is one of those times..
cheers
You got a nice point regarding their locations in attraction points. They also have mini shop in movie theaters. I think at this price the downside risk is minimum.
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