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Domino’s Pizza Enterprises Ltd. share price jumps on French acquisition

Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price has jumped more than 6% higher today after the company announced the acquisition of French-based pizza chain Pizza Sprint.

Domino’s will pay €31.5 million (~$50m) in cash, plus a further €3.5 million ($5.5m) over 18 months based on satisfaction of certain criteria.

Pizza Sprint is a leading independent pizza chain operating in Western France, with 89 stores (77 franchised, 12 corporate owned). The acquisition will see Domino’s store count rise from 254 to 330 in France and is expected to add around 4% to earnings per share.

Domino’s will rebrand and convert Pizza Sprint stores to Domino’s from January 2016 until complete.

The additional 89 stores will go a long way to Domino’s plans to have 1,500 stores across Europe. Add in plans for 900 Australian and New Zealand stores, plus 850 Japanese stores and Domino’s is targeting 3,250 stores by 2025.

The pizza company has seen its share price soar more than 65% over the past 12 months and a whopping 620% in the last five years thanks to steady organic growth from existing stores, the rollout of new stores and astute acquisitions. By comparison, the S&P/ASX 200 (Index: ^XJO)(ASX: XJO) is up just 11% over the past five years.

Interestingly, Domino’s hasn’t branched out into other quick service restaurants (QSR), or other brands, unlike Retail Food Group Limited (ASX: RFG). Retail Food has two pizza brands, Pizza Capers and Crust Pizza while also retaining exposure to cafes, coffee outlets, coffee roasting, donuts and a bakery.

That might come at a later stage – Domino’s is doing very well at what it does best and that’s rolling out Domino’s pizza outlets and growing their revenues in all the countries and territories it holds the licence for.

Foolish takeaway

The problem for investors and current shareholders is that Domino’s sports a trailing P/E ratio of 51x according to Commsec. That’s a hugely expensive price – for any company – and any miss-step could see today’s price of around $42.43 crumble. Retail Food Group has a trailing P/E of 12.5x and a fully franked dividend yield of 5.4%. I know where I’d rather put my money.

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Motley Fool contributor Mike King owns shares in Retail Food Group. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.