The Domino?s Pizza Enterprises Ltd. (ASX: DMP) share price has recovered back to above $60, is it a buy?
Domino?s is a franchisor of Domino?s outlets in Australia, New Zealand, Belgium, France, the Netherlands, Japan and Germany. It has grown to a market capitalisation of $5.46 billion.
There is a lot to like about Domino?s but there are also a few reasons to be wary. Here is my bull and bear case for the Domino?s share price:
Domino?s has been the fastest growing food stock over the past few years. It has done a great job of winning the pizza…
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The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price has recovered back to above $60, is it a buy?
Domino’s is a franchisor of Domino’s outlets in Australia, New Zealand, Belgium, France, the Netherlands, Japan and Germany. It has grown to a market capitalisation of $5.46 billion.
There is a lot to like about Domino’s but there are also a few reasons to be wary. Here is my bull and bear case for the Domino’s share price:
Domino’s has been the fastest growing food stock over the past few years. It has done a great job of winning the pizza wars in Australia and now it’s expanding overseas.
Domino’s has plenty of scope for growth over the next few years by having operations in countries such as Japan and Germany that are underserviced by pizza outlets.
The customer service offering is almost unparalleled by any other competitor. The delivery times combined with the ease of ordering makes it very easy for a Domino’s consumer to get their pizza. Plus, management are always coming up with new technology to improve the service.
I think expanding the menu beyond just pizza is one of the main reasons why Domino’s is still able to achieve the group same store sales growth of 9.4% that it reported for the period to 31 December 2016.
Domino’s is trading at a very high earnings multiple, perhaps too high for how much growth is expected. It’s currently trading at 44x FY17’s estimated earnings, which is very expensive.
The recent news of some franchisees allegedly not paying staff correctly is also hanging over Domino’s, whilst the investigations are ongoing. Uncertainty is never a good thing for a business and the result of the inquiries could be a problem for Domino’s.
Domino’s has been one of the best shares to own over the last 10 years. However, I would describe the shares as expensive changing hands at 44x FY17’s estimated earnings with a grossed-up dividend yield of 2.03%.
I think the underlying business will continue to grow strongly but investors should always be careful about the price they pay because that determines the value they get from their investment. In my opinion, Domino’s isn’t a buy at today’s price.
Instead, I'd rather buy businesses that are reasonably priced growth stocks that could grow just as fast from here such as these three great options.
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Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!
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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. 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.