Papa Murphy's stock gets rare up day, but doubters persist

Papa Murphy's (FRSH) has traded for less than a month, but its first quarterly report is already out, and it's providing a good sense of how Wall Street still views this stock. The answer? Not especially well.

Although the numbers compared well with what Papa Murphy's projected before completing its IPO, traders simply aren't yet scrambling for this name.

[See related: 'Take-and-bake': Will investors buy Papa Murphy's story?]

Recently, shares were up 3.3% to $9.35, off session highs at $9.68. Viewed exclusively as a one-day event, it would be easy to see this as an endorsement of the name. In reality, this action is tepid for a stock that's been a terrible performer since going public earlier this month. In 14 trading sessions before Friday, only two days had seen gains. The day of its quarterly report was the worst one yet, with the stock closing down 7.3%.

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Papa Murphy's IPO priced at $11, the low end of its expected range, and it opened at $12.10 what's actually been its high point thus far. From that starting level, it had fallen 25.2% as of Thursday's $9.05 close.

Once the quarter arrived, several of the headline numbers were in line with what the Vancouver, Wash.-based company offered in its pre-IPO SEC filings. Total revenue was $25.1 million, up from $19.6 million in the prior year. Domestic same-store sales rose 3.3%, including 7.1% at company-owned stores and 3.1% at franchises. Papa Murphy's earned $819,000, though it said earnings were $2 million if certain items were excluded. The company's estimates: Revenue likely would be $23 million to $25 million for the quarter ended March 31, with domestic franchise comparable-store sales growth of 3% to 3.1% and a company-store increase of 6.9% to 7%.

Papa Murphy's, which has more than 1,400 stores in 38 states and believes it eventually can get to 4,500 locations in the U.S., expects at least 105 franchises to open this year. Comps for domestic operations should climb a minimum of 2%. System-wide sales probably will be at least $830 million, which would be 5.7% better than 2013. So Papa Murphy's the company appears generally fine. Papa Murphy's the stock is a different matter. That happens sometimes in the market, as a "good" company can have a "bad" stock if investors simply aren't impressed with the story. Clearly, the opposite occurs, too.

Is it better?

Papa Murphy's challenges aren't insignificant from an investment standpoint, and they're largely competitive in nature. While the company crows about its popularity with diners, it also competes in a heavily populated arena. The U.S. has more than 70,000 pizza sellers, and most  do the cooking for you. Papa Murphy's doesn't. It's of the "take and bake" (it doesn't deliver) variety, meaning you get the pizza and toppings you want, then cook it all in your own oven.

From Papa Murphy's perspective, these are advantages, in that they reduce equipment and labor costs, allow the stores to focus on the fresh-ingredients component of the operation, and provide customers with a hot-out-of-the-oven pizza right at home. But at the same time, these qualities also make Papa Murphy's something of a limited-service grocery store, one that does only part of the work for the buyer as opposed to being an establishment of true convenience  a restaurant, in other words.

Pizza is obviously popular across the nation, with $37 billion in sales. There's room for a host of shops, and for Papa Murphy's to be part of this. But the question isn't can it exist, it's how does it take share and win in a crowded space? That's obviously something investors don't believe has been answered yet  at least not to the degree that has them choosing it over public stores such as Papa John's (PZZA) and Domino's (DPZ). Pizza Hut, the biggest name in the group, is part of Yum Brands (YUM).

If you're an investor, you want to bet on Papa Murphy's if you believe the strength of its product offering in some way elevates it above the others. For too many people, pizza is pizza is pizza, in essence. Yes, of course there are differences, but in a crunch, bad pizza is generally still OK.

The easiest contrast in terms of Wall Street's perception here is with Zoe's Kitchen (ZOES). This Mediterranean food chain went public a couple of weeks before Papa Murphy's, immediately traded much higher than its offer price and has stayed up. Why? One, it's much smaller, meaning it has a greater ability to get rapid growth. Two, it's a type of food that hasn't reached  saturation point in the U.S. Three, it's in the "fast casual" set that's been popular with restaurant visitors who aren't as keen on traditional fast food venues or casual-dining stores such as Chili's and Applebee's.

[See related: Zoe's Kitchen jumps above offering to trade in mid-$20s]

In the end, you can like Papa Murphy's pizzas. You can like the company and the bake-it-yourself model. But traders have made it clear that, as a stock, they've not seen any good reason to get behind it. Unless its growth metrics start to go through the roof, the company just doesn't stand out amid other large, modest-sales-expansion chains, where menu-price fights aren't uncommon. And who's going to buy a newly public pizza maker on its value characteristics?

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