The Domino's Pizza Enterprises Ltd (ASX: DMP) share price has declined from its all-time high of $80 in August 2016 to today's $52.
Domino's was once seen as one of the premier growth stocks on the ASX, but now the share price has fallen on tough times. However, the underlying business is still growing at an impressive rate.
Here are five reasons why I think the Domino's share price is a buy today:
Decline in share price
When something is cheaper it usually means it has become better value, not worse.
The fall in Domino's share price should be seen as an opportunity to pick up shares at a discounted price of a business that grew underlying earnings per share by 28.6% in its latest report. Domino's still has several avenues of growth.
Long-term outlet plan
Domino's has grown far beyond being a pizza business in Australia and New Zealand. At the last count, it had 738 outlets in Australia and New Zealand, 472 outlets in Japan and 838 in Europe. This is a total of 2,048 outlets.
However, over the next decade the business has plans to grow to 1,200 outlets in Australia and New Zealand, 850 outlets in Japan and 2,600 outlets in Europe. This is a planned total of 4,650 outlets. This is a huge growth runway for the business.
Impressive same store sales growth
There's more to the business growth than just the number of outlets. A key part is the growth of sales of existing outlets. This is tracked under the same store sales (SSS) statistic.
In its latest results to 31 December 2016 it reported that group SSS growth was 9.4%. More outlets combined with higher sales at each store is a good combination.
A nice thing to note about Domino's Australian franchisees is that they are very profitable compared to some other food chains. Domino's reported that the average outlet is forecast to earn $138,000 to $145,000 in earnings before interest, tax, depreciation and amortisation (EBITDA) in FY17.
Profit margins increasing
Domino's is a very profitable business in its current form. It reported that EBITDA margins for Australia & New Zealand, Japan and Europe were 36.8%, 13.8% and 18.2% respectively in its December 2016 report.
However, management plan on growing EBITDA margins to 45%, 20% and 25% for Australia & New Zealand, Japan and Europe respectively over the next six years. That would increase the bottom line for Domino's significantly.
More outlets with higher sales at higher profit margins is a very powerful combination.
Technology
Domino's has more high-tech ideas than half of the businesses listed on the NASDAQ. It has already implemented clever ways for pizza lovers to order quicker and track their pizza delivery.
It also has plans to deliver pizza by robots and drones in the distant future, which could increase profit margins even more.
Risks
Every business has risks and Domino's is no exception. The market may judge that the share price is still too hot and that could burn investors at today's price.
The alleged underpayment of franchisee staff is still a cloud hanging over the company. However, once the issue is resolved then that could improve the market's view of the business.
There is a lot of competition for Domino's including McDonald's which just linked up with UberEATS. Retail Food Group Limited (ASX: RFG), Collins Foods Ltd (ASX: CKF) and every other competitor will want to take a slice of Domino's growing market share of the takeaway industry.
Foolish takeaway
Domino's is currently trading at around 36x FY17's estimated earnings with a partially franked dividend yield of 1.68%.
The business may not be to everyone's taste but I think it has a great future and it has a lot of planned growth in the oven.
However, I can understand if investors want more potential income than what Domino's currently offers. That's why I think these shares could be the perfect combination of dividends and growth.
