Domino’s Pizza, Inc. (DPZ), Papa John’s Int’l, Inc. (PZZA) & Yum! Brands, Inc. (YUM): Three Stocks For Pizza Lovers

Yum! is heavily focused on China, its most important market, and the drop in sales and profits in the region is the main reason for the uninspiring quarterly results. Same-store sales actually rose 1% in the United States, but fell a massive 20% in China.

Despite the problems at KFC, Pizza Hut is actually a pillar of strength for Yum! Brands, Inc. (NYSE:YUM), which the company desperately needs right now. June same-store sales fell another 10% in the company’s China division, again led by KFC, which posted a 13% decline in the month. At the same time, Pizza Hut sales in China actually rose 6%.

Is there still room to run?

Domino’s Pizza, Inc. (NYSE:DPZ) and Papa John’s Int’l, Inc. (NASDAQ:PZZA) have seen great operating results in recent quarters. While that would usually be the catalyst for a ‘buy’ recommendation, it needs to be said that these results are largely priced in to the valuation profiles of each stock.

Both stocks trade in excess of 25 times trailing earnings, and Papa John’s doesn’t pay a dividend. After such impressive run-ups over the past couple years, risk-averse investors may have a hard time justifying paying such high multiples. I can certainly emphasize with that assessment: at such high valuations with no dividends, there’s little in the way of downside protection. One bad quarter, and these stocks could easily plummet.

Yum! Brands, Inc. (NYSE:YUM), meanwhile, does pay a dividend of around 1.8% and Domino’s pays 1.26%. Those are decent payouts, but it trails the yield available on the S&P 500. At the same time, Yum! Brands, Inc. (NYSE:YUM)’s results aren’t nearly as impressive as its two peers.

As a result, investors need to tread carefully among the field of pizza purveyors. Domino’s Pizza, Inc. (NYSE:DPZ) and Papa John’s Int’l, Inc. (NASDAQ:PZZA) are clearly the best-performing pizza stocks, but at current levels, you’re paying a steep price for that performance. I’d recommend investors at least wait for a 10% pullback in Domino’s Pizza, Inc. (NYSE:DPZ) or Papa John’s before jumping in.

The article 3 Stocks For Pizza Lovers originally appeared on Fool.com and is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Papa John’s Int’l, Inc. (NASDAQ:PZZA). Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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