Why Warren Buffett might avoid Domino's Pizza Enterprises Ltd (ASX:DMP) shares

He's the world's best investor. As such, it's in our best interests to figure out if he'd invest in this pizza business.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Domino's Pizza Enterprises Ltd (ASX: DMP) is an operating pizza chain comprising both franchisee owned and company owned corporate stores. From 2008 to 2016, the Domino's share price rose from $3 to just under $77. 

Whilst the share price has since fallen 31%, Domino's has grown its operations year on year. Since 2008, total sales have increased 291%, whilst earnings per share have risen 781%.  

Currently, Domino's has a market capital of $4.5 billion and a P/E ratio of 34.5. With book value per share of only $4.67, the market is suggesting that growth will continue. 

Growth 

By 2020, earnings per share (according to analysts' forecasts) are projected to increase by 47.5%, whilst dividends will grow by 47%. This means that if you bought on today's price, you would secure a forward P/E ratio of 23.2 and a dividend yield of 3.1% 

These projections are underpinned by the growth of operating stores. Domino's is expecting to more than double its 2,200 stores across its European, Japanese and Oceania network. By June 2025, the pizza chain intends to have 4,650 stores in operation. 

Whilst the projected growth is impressive, it appears to be over-accounted for on the current price.

The majority of large brokers have labelled Domino's as a "hold". However, there are some that are expecting bigger and better things. 

Domino's holds approximately 25% of the local pizza market and is doing everything in its power to extend its position. From website developments, personalised marketing campaigns and drone delivery services, Domino's is searching for competitive advantages.

It is a historically strong performer, an easy to understand business model and is constantly searching for competitive advantages. Whilst meeting the majority of Buffett's criteria, the comparatively high price reduces the margin for error. 

Foolish takeaway 

In my opinion, if the 'Oracle of Omaha' was looking at buying Domino's shares, he'd wait until Mr. Market had a bad day. Although, it's also possible that Domino's might not pass Buffett's value and quality investing style at all.

It might be worth having a look at the closet thing Australia has to an investment conglomerate in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or the Buffett-owned Insurance Group Australia Ltd (ASX:IAG) if you really want to follow Buffett's investment style more closely.

Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Insurance Australia Group Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited. 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 Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »