5 reasons to buy Domino’s Pizza Enterprises Ltd. shares in 2016

Domino’s Pizza Enterprises Ltd. (ASX: DMP) has hit the headlines again after it announced the acquisition of “Joey’s Pizza” chain of 212 stores in Germany.

This new acquisition by Domino’s Pizza Enterprises is a positive step to expand and grow the business in Europe. One broker dubbed the acquisition as “strategically sound”. Domino’s will take a two-thirds interest in equity by partnering with UK-listed Domino’s Pizza Group PLC (DPG).

Here are five reasons to buy Domino’s shares.

  1. Domino’s is a successful international business. The acquisitions in Germany will give Domino’s a solid foothold in Europe’s largest economy. Domino’s Pizza brand is already successful in Belgium, France and the Netherlands, and will get a boost with the addition of Germany. After this acquisition the total store count in Europe will increase by approximately 775 stores.
  2. Australian stock Exchange (ASX) listed, Domino’s Pizza Enterprises holds the master franchise rights for the Domino’s brand and network in Australia, New Zealand, France, Belgium, the Netherlands, the Principality of Monaco and Japan. The strong global portfolio with the addition of Germany has made it possible to expand the number of outlets from the existing 1,794 stores to 4,050 stores.
  3. The acquisition in Germany has put Domino’s on a long-term path for growth. Domino’s as a brand is already experiencing a high growth rate as is evident from the Compound Annual Growth Rate (CAGR) in Earnings per Share (EPS) over the last 5 years.
    5-Year CAGR  Rate 28 June 2015 29 June 2014 30 June 2013 1 July 2012 3 July 2011
    Earnings Per Share (Basic) 19.86% 74.2 cents 50.5 cents 39.1 cents 37.2 cents 30 cents

    Source: Domino’s Pizza Enterprises Limited 2015 Financial Report.

    The management now expects 30% growth in Net Profit after Tax (NPAT) for the 2016 financial year after acquiring new pizza stores in Germany.

  4. Domino’s is putting increasing focus on digital innovation. Domino’s has launched GPS driver tracker, SMS ordering, Smart Watch ordering, Apple watch live pizza tracker, and an upgraded iphone and ipad applications.
  5. Product innovation is another key factor that is helping generate strong sales at Domino’s. The launch of the online “Pizza Mogul” initiative proved highly successful, which allowed customers to design their own pizzas. Other successful product innovations are the new value range $5 pizzas, pulled pork and beef ranges and the new Churros.

Foolish takeaway

Domino’s started in America in the 1960s and is the second-largest pizza chain in America and the largest worldwide. It is possible that Domino’s will continue to achieve a high growth rate for another decade at least. The Australian listed Domino’s Pizza Enterprises has good future prospects, as there is still potential to open many more Domino’s outlets in countries for which it has the master franchise rights. I would recommend buying Domino’s shares between a Price to Earnings ratio (P/E) of 35 and 45.

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Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. 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.

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