Pizza Pizza Royalty Corp (PZA) - Company Analysis

Welcome back, and thank you for tuning into blog post number 4! This is going to be a tasty one. Before we jump in and get all greasy, I must say, please do your own due-diligence and research before investing your hard earned money in any company. With that said, today we are going to be discussing Pizza Pizza Royalty Corporation, ticker symbol PZA, a stock that serves up dividends like a hot slice of pepperoni! This company literally makes its money off of people's love for cheesy, carb-loaded goodness, and best of all, they were born in the motherland of Canada, and are traded on the Toronto Stock Exchange (TSX). We're going to take a deep dive here into PZA, past the cheese and tomato sauce, under the crust, and really talk about what's going on with this company, because it is currently in quite a contentious position. So, first of all, as I am sure most of you Canadians are aware, the PZA company is a franchise of pizza restaurants, more specifically owning approximately 622 "Pizza Pizza" brand restaurants and 103 "Pizza 73" restaurants. The company is headquartered in none other than Toronto, Ontario, and currently employs roughly 1200 full-time employees. This stock is particularly tasty, besides the fact that it's pizza, because of it's 7.3% dividend yield, with a strong and consistent growth history, in both stock value and dividend payout (I am done with the pizza jokes now, I promise). Regarding that fact, PZA has always been a perfect piece to the income-dividend style investors portfolio puzzle, for the simple fact that if you're looking for a slice of reliable income, this company's dividends are always hot and fresh (I lied). Now, what is this contentious position I speak of, and how is PZA looking in today's market?

As I briefly mentioned, this is a great stock for income-dividend style investing, meaning you're looking at earning a stable and consistent "income", from higher dividend yielding companies. For example, if you have a company that's dividend is 10%, which is quite high, and you invest $100,000, you are looking at collecting this $10,000 annually as your "income", and you don't really care much for stock value growth as long as your collecting that 10% income year on year. Now, the concerns that arise right now with the company are not necessarily regarding the consistent dividend yield, but more specifically have to do with their same-store sales growth (SSSG). They have recorded a downturn in recent quarters, notably Q2 and Q1 results show a significant drop in sales growth, hinting at potential challenges for capital returns, and sustainability. However, in contrast, as of February 19th when writing this, the stock price has risen in 8 of the last 10 trading days, and is up around 5% over the last 2 weeks. While some analysts offer a hold, or even a sell consensus based on the negative market sentiment due to the decrease in SSSG, there still exists a number of analysts who hold a strong buy rating based on high moving averages paired with increasing stock value. Clearly, stock sentiment regarding PZA is a little disunified among analysts, and when comparing different methods of measuring this stock's intrinsic value, things do not get any clearer. To clarify, a stock's 'intrinsic value' is basically a measurement of what the stock is actually worth, so all the good stuff like cash flow, assets, earnings, etc., excluding the market sentiment and speculation ("value investing", Warren Buffet's bread and honey). If you were to use the discounted cashflow method (DCF) of measuring this stock's intrinsic value, then you would find it is massively undervalued with the target price being $300 per share, with an upside of 2182%! This method basically takes the projected cash flows for the next 5 years and discounts them to present value, because a dollar today is worth more than a dollar tomorrow. On the contrary, using Peter Lynch's fair value method, you would find the target share price is only $6.32, with a 52% downside. This method takes the earnings per share (EPS), and multiplies it by the EPS growth rate, which if we're being honest, is a much more accurate way to value a stock fairly than by JUST taking the DCF over the next 5 years, but I wanted to show you the true inconsistency in sentiment and valuations of this stock.

Ya ya Nolan, we get it, nobody really knows where this stock will end up in the future, but what does this all mean? Well, I am so glad you asked, and doughn't worry, I will keep it very straight forward. As mentioned before, this stock is a perfect candidate for longer term investment strategies focused on cash flow via dividends, meaning we are relying on our good friend compounding to maximize our returns by reinvesting the dividends back into PZA over a long period. We talked about this topic briefly in my 20/40/40 Young Millionaire Budgeting Strategy post, but I will give another quick example to properly illustrate the powerful potential of this beautiful concept, compounding. Let's say you invest $100,000 today into PZA, given its trusty and reliable 7% dividend return, you could count on having close to a whopping $550,000 in 25 years. Now, imagine you set aside a large portion of your salary each and every year towards that PZA investment throughout the 25 years... ya, the skies the limit when it comes to compounding investments. So, I get it, this all sounds nice, but it only comes to fruition if the stock is sustainable and reliable throughout those 25 years, and Peter Lynch thinks it's a hunk of overpriced trash, so this stock is equivalent to a stale slice of pizza, right? Well, no, not exactly; the truth is there are dozens of ways to measure a stock's intrinsic value, and then dozens of more ways to combine those measurements together, and they will all sit on different sides of the line when it comes to PZA. For me, Pizza Pizza is a Canadian born and run company that isn't going anywhere, anytime soon, and last I checked, I don't think people are getting tired of pizza anytime soon either. The stock has had a reliable and consistent dividend for the past 5 years and even longer, and there aren't any detrimental financial or economic roadblocks I see in the near future that scare me for this stock in particular, that would make me think this will change anytime soon. It's a holding in my portfolio, and if I saw it in someone else's I wouldn't advise otherwise, but then again, please conduct your own due-diligence before investing your money in anything.

Thank you very much for reading as always, any and all support is very much appreciated. I apologize for the cheesy jokes, but this was a cheesy topic after all.

Nolan Kushnir.

Citations

Legate-Wolfe, A. (2024, September 6). What’s going on with pizza pizza stock? The Motley Fool Canada. https://www.fool.ca/2024/09/05/whats-going-on-with-pizza-pizza-stock/

Pizza Pizza Royalty Corp (TSX:PZA). AlphaSpread.com. (n.d.). https://www.alphaspread.com/security/tsx/pza/summary

PZA.TO intrinsic value | pizza pizza royalty corp (PZA.TO). ValueInvesting.io . (n.d.). https://valueinvesting.io/PZA.TO/valuation/intrinsic-value

StockInvest.us. (n.d.). Pizza Pizza Royalty . stock price forecast. should you buy PZA.TO? https://stockinvest.us/stock/PZA.TO

Yahoo! (2025, February 26). Pizza Pizza Royalty Corp. (PZA.TO) stock price, news, Quote & History. Yahoo! Finance. https://ca.finance.yahoo.com/quote/PZA.TO/