Yahoo Finance Imagine Owning Pizza Pizza Royalty And Wondering If The 32% Share Price Slide Is Justified
It’s easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Investors in Pizza Pizza Royalty Corp. (TSE:PZA) have tasted that bitter downside in the last year, as the share price dropped 32%. That’s well bellow the market return of 3.5%. However, the longer term returns haven’t been so bad, with the stock down 25% in the last three years. On top of that, the share price is down 7.4% in the last week. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Check out our latest analysis for Pizza Pizza Royalty
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unfortunately Pizza Pizza Royalty reported an EPS drop of 2.0% for the last year. The share price decline of 32% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business. The P/E ratio of 11.38 also points to the negative market sentiment.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Pizza Pizza Royalty’s TSR for the last year was -26%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Pizza Pizza Royalty shareholders are down 26% for the year (even including dividends), but the market itself is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 1.2% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on Pizza Pizza Royalty it might be wise to click here to see if insiders have been buying or selling shares.
But note: Pizza Pizza Royalty may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
