YUM! Brands Inc. (NYSE:YUM)

An analysis of the common stock valuation ratios between 2011 and 2015 reveals a period of significant volatility in earnings-based multiples, contrasted by stability in revenue multiples and an aggressive expansion in book value premiums.

Price to Earnings (P/E) and Price to Operating Profit (P/OP)

Both the P/E and P/OP ratios exhibited closely correlated movement patterns throughout the period. A simultaneous dip occurred in 2012, with the P/E falling to 18.22 and the P/OP to 12.68. This was followed by a period of valuation expansion, peaking in 2014 at 31.34 and 21.16, respectively. By the end of 2015, both ratios underwent a sharp correction, with the P/E returning to 21.97 and the P/OP dropping to 14.79.

Price to Sales (P/S)

The P/S ratio demonstrated the lowest volatility among the analyzed metrics. Values remained consistently within a tight range, fluctuating between a low of 2.13 in 2012 and a high of 2.48 in 2013 and 2014. This suggests a stable market valuation relative to the company's top-line revenue generation regardless of bottom-line fluctuations.

Price to Book Value (P/BV)

A pronounced upward trend is observed in the P/BV ratio starting after 2012. After reaching a period low of 13.51 in 2012, the ratio grew steadily to 14.98 in 2013, followed by an accelerated increase to 21.29 in 2014 and reaching a peak of 31.19 in 2015. This represents a significant increase in the market premium attributed to the company's net assets over the five-year duration.

In summary, while revenue-based valuation remained flat, the market's perception of the company's equity and earnings potential shifted dynamically, characterized by a valuation peak in 2014 and a substantial divergence in book value appreciation by 2015.

The valuation of common stock from 2011 to 2015 reveals a period of fluctuating investor sentiment and inconsistent earnings performance. The relationship between share price and earnings per share resulted in a P/E ratio that experienced both significant expansion and subsequent contraction.

Share Price Movement

The share price remained relatively stable between 2011 and 2012 before entering an upward trajectory, reaching a peak of 76.05 US$ in 2014. A correction occurred in 2015, with the price descending to 69.52 US$.

Earnings per Share (EPS) Performance

EPS exhibited a non-linear trend, peaking early in the observed period at 3.54 US$ in 2012. A notable decline followed in 2013 and 2014, where earnings dropped to 2.46 US$ and 2.43 US$, respectively. A recovery was observed in 2015, with EPS rising to 3.16 US$.

Price-to-Earnings (P/E) Ratio Trends

The P/E ratio demonstrated substantial volatility. After dipping to a period low of 18.22 in 2012 due to strong earnings growth, the ratio expanded sharply to 29.73 in 2013 and reached a maximum of 31.34 in 2014. This expansion indicates that the market maintained or increased its valuation of the stock despite a simultaneous decline in earnings. By 2015, the ratio contracted to 21.97, reflecting a normalization as earnings improved and the share price moderated.

The analysis of valuation multiples from 2011 to 2015 reveals a volatile Price to Operating Profit (P/OP) ratio, characterized by a period of significant expansion followed by a sharp correction.

Share Price Movements

The share price exhibited a general upward trend between 2011 and 2014, rising from 65.50 US$ to a peak of 76.05 US$. However, this growth reversed in 2015, with the price declining to 69.52 US$.

Operating Profit per Share Performance

Operating profit per share demonstrated inconsistent performance over the five-year period. After an initial increase to 5.09 US$ in 2012, a downward trend occurred over the next two years, reaching a low of 3.59 US$ in 2014. A recovery was observed in 2015, with the figure rising to 4.70 US$.

Price to Operating Profit (P/OP) Analysis

The P/OP ratio fluctuated significantly, reflecting a divergence between market valuation and operational profitability. In 2012, the ratio declined to 12.68 as operating profits increased while the share price remained relatively flat. Conversely, the ratio climbed steadily from 2013 to 2014, reaching a period high of 21.16; this increase was driven by rising share prices occurring simultaneously with declining operating profits per share. By 2015, the ratio contracted to 14.79, a result of the dual impact of a lower share price and improved operating profit per share.

Between 2011 and 2015, the valuation of the common stock relative to its sales exhibited a pattern of fluctuation within a narrow range, suggesting a consistent market valuation framework despite shifts in share price and operational performance.

Share Price Performance

The share price experienced moderate volatility over the five-year period. Starting at 65.50 US$ in 2011, the price reached a peak of 76.05 US$ in 2014 before declining to 69.52 US$ by the end of 2015.

Sales per Share Growth

A general upward trajectory is observed in sales per share, which rose from 27.42 US$ in 2011 to 32.06 US$ in 2015. This growth indicates a steady increase in revenue generation per share, with only a minor contraction occurring between 2012 and 2013.

Price to Sales (P/S) Ratio Dynamics

The P/S ratio remained relatively stable, oscillating between a minimum of 2.13 in 2012 and a maximum of 2.48 in 2013 and 2014. The decline in the ratio during 2012 was driven by sales growth outpacing share price movements. Conversely, the expansion to 2.48 in 2013 and 2014 reflected a period where share price appreciation exceeded the growth rate of sales. By 2015, the ratio contracted to 2.17, as the decrease in share price offset the continued increase in sales per share.

The Price to Book Value (P/BV) ratio for the period between 2011 and 2015 exhibits a significant upward trend, characterized by a sharp acceleration in the final two years. While the ratio fluctuated between 13.51 and 16.54 from 2011 to 2013, it increased substantially to 21.29 in 2014 and reached a peak of 31.19 by the end of 2015.

Book Value Per Share (BVPS) Dynamics

A critical driver of the escalating P/BV ratio is the marked contraction in the book value per share. After an initial increase from 3.96 US$ in 2011 to a peak of 4.89 US$ in 2013, the BVPS declined precipitously to 3.57 US$ in 2014 and further to 2.23 US$ in 2015. This downward trend in equity value per share created a mathematical expansion of the price multiple.

Share Price Correlation

The share price remained relatively stable compared to the volatility of the book value. The price fluctuated within a range of 64.56 US$ to 76.05 US$ throughout the five-year period. Because the share price did not decline in proportion to the falling book value, the P/BV ratio expanded, indicating that the market placed a significantly higher premium on the company's assets relative to their accounting value by 2015.

Valuation Multiple Analysis

The transition from a P/BV of 14.98 in 2013 to 31.19 in 2015 represents a more than twofold increase in the valuation multiple. This divergence suggests a shift where market valuation became increasingly decoupled from the tangible book value, likely reflecting investor confidence in intangible assets, brand equity, or future earnings potential over historical cost accounting.