The Domino's Pizza Enterprises Ltd (ASX: DMP) share price has grown by 14% since the 13th of September, there could be a lot more growth ahead over the long-term.
Domino's is a master franchisor of Domino's pizza outlets for all the regions that it operates in. This includes Australia, New Zealand, Japan, Belgium, France, the Netherlands and Germany.
Here are a few reasons why Domino's could be a good long-term buy:
Increasing outlet numbers
Domino's already has an impressive number of outlets, numbering over 2,000.
However, the business has a long-term plan to grow this number significantly to over 4,500. This would be roughly 1,200 outlets in Australia & New Zealand, 850 in Japan and 2,600 in Europe.
This will significantly boost revenue and profit, even if it takes a decade to do it.
Increasing margins
Domino's is a very profitable business. As the business gets bigger it grows its economies of scale, making it even more profitable.
Management predict that it's possible to grow the earnings before interest, tax, depreciation and amortisation (EBITDA) margins by around 8% for each region to 45%, 25% and 20% for Australia & New Zealand, Europe and Japan respectively.
Decline in share price
Shareholders have felt the pain of the Domino's share price fall from $80 all the way to today's $46. However, this is exciting for prospective shareholders with the price/earnings ratio reaching a relatively normal level.
Domino's shares are currently trading at 29x FY18's estimated earnings.
Is it a buy?
The Domino's share price still trades on a fairly rich valuation. A key part of future success will be the continued strength of same stores sales growth. If that continues to be in the high single digits for several years then I think Domino's will be a big winner.
