Pizza Pizza Royalty (TSX:PZA) has historically been a tasty investment for shareholders, thanks to its consistent revenue growth and strong dividend payouts. With a robust business model that earns royalties from its franchise operations, the company has managed to keep its cash flow steady, even in tougher economic times.

The combination of a loyal customer base, effective marketing strategies, and a focus on expanding its restaurant locations has led to impressive financial performance over the years. Plus, with its generous dividends, investors can enjoy a slice of passive income while watching their investment rise. Thus making Pizza Pizza not just a favourite for pizza lovers, but also a solid choice for savvy investors! So, what's going on lately with the stock?

Should you buy?

Pizza Pizza is a deliciously enticing stock to consider for your investment portfolio! With a market cap of approximately $418.60 million and a forward price-to-earnings (P/E) ratio of 13.11, the stock offers a relatively affordable entry point compared to its potential earnings. The company's strong profit margin of 77.86% and operating margin of 98.05% highlight its efficiency and profitability.

Plus, with a forward annual dividend yield of around 7.31%, investors can enjoy a nice slice of passive income while benefiting from the company's growth. Even though the stock has seen a 52-week drop of 12% as of writing, this dip might present a great buying opportunity for savvy investors looking to snag a quality stock at a lower price.

Furthermore, Pizza Pizza has committed to expanding its restaurant network, with 31 new locations added to its royalty pool this year. Although same-store sales experienced a slight decline, the increase in overall royalty pool sales demonstrates resilience and adaptability. But is there any reason to be worried?

Sell instead?

Pizza Pizza might not be the best slice to keep in your portfolio right now for a few reasons. While the stock has a market cap of around $418.60 million and boasts a respectable trailing P/E ratio, it recently faced a decline in same-store sales, dropping by 3.9% in the latest quarter. This dip in sales, along with a decrease in royalty pool sales by 2.0%, raises red flags about the company's growth trajectory. Moreover, with a payout ratio of 92.60%, the company is distributing nearly all its earnings as dividends. This can limit its ability to reinvest in growth or navigate challenging economic conditions.

Plus, while the company has expanded its restaurant network, the overall financial health is a bit shaky. With quarterly revenue growth down 1.60% and a net income attributable to common shareholders of $31.51 million, the pressure on profitability is evident. The current economic climate, marked by reduced discretionary spending, is affecting customer traffic and, therefore, future growth.

Hold for now

Pizza Pizza might be a stock to hold onto for now, especially given its strong historical performance and solid dividend yield of around 7.31%. While the company has faced challenges recently, it has also shown resilience. The expansion of the royalty pool indicates that management is focused on long-term growth, and the commitment to paying dividends suggests confidence in the company's ability to generate cash flow. Even though the stock is currently down, holding onto it could be wise as it may bounce back with the right strategies in place.

Furthermore, despite the recent dips in sales and earnings, the company's profit margins remain impressive, with a staggering operating margin of 98.05%. While it might be tempting to sell amid recent performance struggles, the long-term potential of PZA makes it a reasonable hold for investors, especially those looking to navigate the current market landscape. With a little patience, PZA could prove to be a worthwhile investment in the long run!