Pizza consumption is on the rise, and so too are pizza stocks. Or, at least they were until they started going stale a few months back. Now they all look … well, yucky.
It’s as if the bears have finally emerged from hibernation and wandered into pizza stocks to sate their appetite.
In reality the weakness in these restaurants can likely be blamed on a myriad of factors. Chief among them is the fact that — at least in the case of PZZA and DPZ — they’ve risen into the stratosphere and the slightest misstep in earnings has been met with swift punishment.
The big pizza chains are one of the few areas that weren’t caught up in October’s stock market melt-up. So let’s pop the box and dig into the charts of PZZA, DPZ and YUM to see if there’s a bearish trade or two to be made.
3 Pizza Stocks Going Stale: Papa John’s Int’l, Inc. (PZZA)
The meteoric rise in Papa John’s (PZZA) over the course of the 2009-15 bull market has been insane. You may not be aware of it, but this currently $58 stock fell as low as $6 during the death spiral of 2008.
PZZA stock was already limping into this week’s earnings announcement, but the selling has intensified. In fact, the amount of volume we’ve seen this week in Papa John’s is the highest since 2011. That’s some significant distribution.
With PZZA stock below all major moving averages, rallies should be eyed with suspicion for now. While I wouldn’t suggest shorting Papa John’s into the hole here, selling rallies isn’t a bad idea.
Stay away from the options, though. They’re too illiquid.
3 Pizza Stocks Going Stale: Domino’s Pizza, Inc. (DPZ)
Domino’s Pizza (DPZ) is the least bad of the bunch — not that that’s saying much. Compared to the S&P 500, DPZ has been a dog in recent months, just like the rest of the pizza posse.
While Domino’s is only 13% off its highs and not yet in bear country, technical deterioration continues to escalate. DPZ stock has sunk below all its major moving averages, and the recent consolidation has taken on the form of a descending triangle. Sellers are firmly in control for now, and an interesting bearish trade is looming.
Short DPZ stock on a support break below $102.
3 Pizza Stocks Going Stale: Yum! Brands, Inc. (YUM)
Yum! Brands (YUM) rounds out our trio of trouble. It’s appropriate to cover YUM last since it’s the worst performer of the bunch.
To be fair, it’s also the least pure play on pizza since it operates the licensed brands for not just Pizza Hut, but also Taco Bell, KFC and WingStreet.
YUM’s price action remains firmly entrenched in a downtrend. Like Papa John’s, Yum! Brands was taken behind the woodshed and beaten mercilessly following earning last month. The amount of distribution that came into the market following its earnings upset was the highest in years.
The liquidity in YUM options is pretty good, so if you’re looking to score on further downside, consider buying the Jan $72.50 put option.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.