3 reasons I think Domino’s Pizza Enterprises Ltd shares are a buy

In the last 12 months the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price has been amongst the worst performers on the local share market.

In fact, just yesterday the pizza operator’s shares fell to a new 52-week low of $51.23. This means its shares have now fallen over 36% from the 52-week high of $80.69 they reached in August of last year.

Here are three reasons why I think now could be a great time to snap up shares:

Good value.

As much as I loved the company, in the past its shares were always too expensive for my liking. But following this decline Domino’s shares are changing hands at a 37x estimated full-year earnings. I feel this is a fair multiple to pay to own the shares of a company that has delivered average annual earnings growth of 29% over the last decade. Furthermore, this growth shows no signs of slowing, with management expecting underlying EBITDA and NPAT growth to be in the region of 32.5% in FY 2017.

Strong growth prospects.

Whilst there had been concerns over the profitability of some of its franchisees, in its half-year update the company noted that franchisee profitability in Australia and New Zealand is at record levels. This means that the current store payback is on average between 3 to 5 years. With a return on investment of that level, I don’t think it will be hard for Domino’s to find new or existing franchisees to assist with growing its store network. The company ultimately has a global target of 4,650 stores by 2025, over double its current footprint.

Margin expansion.

Over the next six years the company aims to increase its EBITDA margin in Australia and New Zealand to 45% from the 36.7% level it operates on today. Elsewhere, management has targeted improvements in Europe and Japan within five years. In these countries Domino’s expects to achieve EBITDA margins of 25% and 20%, respectively. I have confidence that the company’s focus on technology and productivity will allow it to at least deliver on these expectations.

Foolish takeaway

Overall I believe this recent share price decline makes Domino’s a great long-term buy and hold option for investors today alongside industry peer Collins Foods Ltd (ASX: CKF).

Finally, if you love growth shares like Domino's then these shares could be just what you are looking for.

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Motley Fool contributor James Mickleboro owns shares of Collins Food Limited. 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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