Papa John’s Int’l, Inc. (PZZA), Yum! Brands, Inc. (YUM): 3 Evaluating Ratios: The Pizza Industry

A TBVPS larger than the current price of the stock means that the stock could be potentially overvalued, whereas, obviously, a TBVPS smaller than the stock could mean that the stock is potentially undervalued. Formulaically, for those who are interested, TBVPS is equal to: (Tangible Book Value – Book Value of Preferred Stock) / Common Shares Outstanding. Now, let’s look at each company’s TBVPS in relation to their stock price.

As you can tell, both are potentially overvalued. So, which could be the most overvalued? To do this, we can simply divide the TBVPS by the current stock price, where the lowest TBVPS / Price would represent the company potentially the most overvalued.

So, according to this metric, all three are potentially overvalued, with Domino’s ringing in a negative TBVPS / Price ratio. All three companies are potentially incredibly overvalued, meaning that investors should invest with caution. However, Papa John’s Int’l, Inc. (NASDAQ:PZZA) comes in at the closest to having a TBVPS equal to the current stock price, meaning they limp out of this round with the win.

Foolish bottom line

Obviously, there is much more at stake than these three metrics, and no company should be added to a portfolio based on solely these three things. However, these should help as a guideline when deciding between companies in an industry. My hope here was to help introduce you to a few not-so-common ways to evaluate a company that are still very useful.

So, in the end, who won? Well, Papa John’s won 2/3 of our “contests,” putting them in the lead, with Domino’s winning just 1. That certainly isn’t a knock against Domino’s. In fact, their KZ index was off the charts. However, no company should be fully evaluated based on something that is not exactly pinpoint accurate. Plus, their TBVPS / Price ratio was a bit concerning…

Still, these three metrics are not enough criteria alone to make a buy or sell decision. However, they should help educate you about three little-known metrics that can be very helpful in evaluating a company, and hopefully are something you are now familiar with enough to use with other industries

The article 3 Evaluating Ratios: The Pizza Industry originally appeared on Fool.com and is written by Michael Nolan.

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