What’s behind the share price rise of Domino’s Pizza Enterprises Ltd?

Credit: Seth Werkheiser

Last year millennials became the largest generation by population size in the world. Roughly defined as 18 to 34-year-olds, the size of the millennial population finally overtook that of the baby boomers.

Although the millennial generation’s spending power has been steadily increasing each year, how they choose to spend this money has differed from previous generations. This has brought challenges to many businesses, which are beginning to lose relevance.

I would say a business such as Myer Holdings Ltd (ASX: MYR) is a prime example of one which is struggling for relevance with millennials. Because of this, I don’t find it too surprising to learn that its share price has fallen by around 66% in the last five years.

But it’s not all doom and gloom on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). I believe there is one share in particular that will prosper on the back of the rise of the millennial generation.

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

I believe Domino’s is a great example of a company that has connected brilliantly with millennials. Contrary to Myer, in the last five years the shares of Domino’s have risen by almost 750%.

While I wouldn’t expect to see this sort of growth again in the next five years, I still believe the company will provide meaningful returns for its shareholders.

In my opinion, Domino’s focus on technology has really given it an advantage over its competitors. The ease at which consumers can order pizza from online is incredibly appealing for this tech-savvy generation.

As well as this, it has been well-documented that millennials are spending a lot of their disposable income on convenience food. I feel Domino’s is positioned incredibly well to benefit from this growing trend.

Also, as you may have noticed, the company has dropped the word pizza from its name. This is all part of its strategy to take on McDonalds and KFC, by offering more than just pizza. This could be a big revenue driver in the future, which could go some way to ensuring strong earnings growth for years to come.

According to CommSec, analysts are expecting earnings to grow by a massive 33% per year for the next couple of years. Although it is priced at 60x earnings, this level of growth goes some way to justifying paying a premium.

I think Domino’s is a great long-term investment today. But investors should be mindful that if growth slows, the share price could tumble. The market has high expectations and a tendency to punish those which fail to deliver on them (no pun intended).

The Internet is About to Go "Six Feet Under"... And You CAN'T Afford to Miss What Comes Next

In-the-know investors are dancing on the Internet's grave--and gearing up to cash in on an even BIGGER tech industry. Australia--and the world--will NEVER be the same. Dollar for dollar, insiders are calling it one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

Motley Fool contributor James Mickleboro 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.