I’m not just talking about your taste buds when I suggest that the Pizza industry could have you salivating. There is lots of investment potential in the three pizza giants: Papa John’s Int’l, Inc. (NASDAQ:PZZA), Domino’s Pizza, Inc. (NYSE:DPZ) and Yum! Brands, Inc.(NYSE:YUM)-owned Pizza Hut. In this article, I will compare the three based on three of my favorite metrics that I will hopefully be introducing you to today. Although they are not significant enough to make a buy or sell decision, they will hopefully help you further evaluate companies beyond the criteria you may normally use, both in the pizza industry, as well as in many others. For the sake of comparing companies in the industry, I included Pizza Hut, one of the largest members, which is owned by Yum! Brands. However, Yum also owns many other companies, like Taco Bell and KFC. So, the numbers for Yum! Brands, Inc.(NYSE:YUM) may be a bit skewed or unrepresentative however, I am including them to help compare between the brands. That being said, let’s get started.
Measuring a company’s asset utilization is one of my favorite metrics to use, and it is great way to measure the efficiency of a company. In determining which of these three companies may belong in your portfolio, there are obviously countless factors, and efficiency is one of many things to take into account. However, for the sake of analyzing the companies broadly, asset utilization is one of the ways I will be using.
Asset utilization, for those who do not know, calculates a company’s total revenue earned for each dollar of assets that the company owns. For example, a ratio of 70% means that the company earned $.70 for every dollar of assets that it holds. A higher percentage tends to indicate a higher efficiency with this ratio.
While it is not always pinpoint-accurate, the ratio does usually give us a good indication of how each company is in terms of efficiency. So, given that, let’s take a look at the graph:
As you can see, all three are incredibly efficient, boasting well over 100% efficiency, with Pizza Hut and Domino’s in the 300% range. However, typically the ratio is more effective when using it to compare companies side-by-side. Furthermore, it helps to use the ratio over a history of a few years, as opposed to just a current value. An increasing asset ratio over time indicates a company being more efficient with every dollar of assets. However, the three companies have kept near-constant asset utilization levels over the past few years. Papa John’s Int’l, Inc. (NASDAQ:PZZA) seems to show the highest increase in efficiency over the past few years, making them a solid long-term bet. Domino’s Pizza, Inc. (NYSE:DPZ) was steadily increasing as well until abrupt fluctuations began a year ago, making it impossible to fully understand which way they are going in this regard. And, finally, Yum! Brands, Inc.(NYSE:YUM), while its ratio is lower now than it was a few years ago, the drop is so small that it is essentially negligible, and they have very good asset utilization to justify a slight drop over a few years. Still, in the end, Papa John’s comes out on top for this metric by a hair.