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Here’s why Domino’s Pizza is cooking up a storm today

What: Shares in Domino’s Pizza Enterprises Ltd (ASX: DMP) have received a welcome boost today, having risen 73c or 3.9% to be trading at $19.70 a share following an updated FY14 earnings guidance. Although the stock is sitting 11.7% below its 52-week high, it has still risen an astonishing 50% over the last 12 months.

So What: In a presentation to the Goldman Sachs 5th Annual Small and Mid-Cap Conference, Domino’s Pizza highlighted its strong performance for its first-half ending 29 December 2013. Some of the key points included a 38.8% increase in net profit after tax (NPAT), a 20.3% increase in underlying earnings per share (EPS), a 4.6% boost in same store sales (SSS).

The presentation also provided investors with an update on its Australia/New Zealand and Japan operations. In Japan, Domino’s now expects to open more than 50 new stores (previous guidance was 45-50) and grow EBITDA (earnings before interest, tax, depreciation and amortisation) by 25% (previous guidance was 15%).

While its guidance for its Australia, New Zealand and European operations remained largely unchanged, it will increase capex to $30-35 million to fund additional growth prospects and new store growth. It will also help fund the company’s digital prospects (the company has previously stated that it wants to transform itself into “an online digital business that sells pizza”).

Now What: Although the company still has plenty of growth ahead of it, investors need to be wary of the stock’s excessive valuation. While it is currently trading on a P/E ratio of 36.5, it may be worthwhile considering other ways to gain exposure to the food and beverage sector. Coca-Cola Amatil Ltd (ASX: CCL), for instance, is trading on a P/E ratio of 15 while Retail Good Group Limited (ASX: RFG) is trading on a multiple of 15.2.

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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.

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