The Domino's share price has smashed the ASX 200 for over a decade

The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price has soared over 1500% higher over the last 10 years, smashing the ASX 200.

| 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

The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price has soared over 1500% higher over the last 10 years, while the S&P/ASX 200 index has climbed around 70% higher over the period.

Domino's is a $4 billion market cap company that operates retail food outlets and a franchise service. The company is Domino's Pizza Inc. (NYSE: DPZ) largest franchisee outside of the USA. It holds the master franchise rights to the Domino's brand and network in Australia, New Zealand, Belgium, France, The Netherlands, Japan, Germany, and Luxembourg. Over the past decade, the company has returned 1,534%, excluding dividends! That can be partly attributed to the greater than 24% CAGR in underlying earnings over the 10 years to 30 June 2018.

FY18 Earnings

In FY18 Domino's reported stellar results but failed to meet the markets lofty expectations. Free cash flow more than doubled to $120.6 million, whilst revenue grew 7.5% (to $1.154 billion) and underlying EPS grew 14.4% (to 152.8 cents). The company also aggressively bought back stock, with the cancellation of 4,348,366 shares. A strong calendar year 2019 program was announced on 21 December 2018, with 85,537,140 shares available for on-market purchase.

3 factors of Domino's success

The past success of Domino's, as well as the future prosperity, relates to three things: quality ingredients and pizza's; innovation in technology; and a growing store base.

The quality of ingredients has improved significantly over the years. At the current pizza price point, a focus on maintaining quality at a reasonable cost is critical.

In FY18 Domino's added 308 stores to the network, across ANZ, Japan and Europe. From the approximately 2,400 stores current held, the company is targeting 4,650 stores by 2025. Each new profitable store should increase earnings, as economies of scale can be employed.

Domino's was ahead of the curve when it came to the use of technology in pizza making and delivery. In FY18 the company saw a 19.4% increase in online sales. The use of websites and mobile apps has made it easier and more convenient than ever the order exactly what you want, and receive in an acceptable time frame. Domino's continues to innovate in order to drive sales. Some of the latest and upcoming features include an augmented reality pizza chef, improved pizza checker, and Domino's dating.

Foolish Takeaway

With such a strong record of success, Domino's understandably trades at a premium to market multiples. Domino's shares trades on a P/E ratio of 34x earnings compared the market's 16/17x earnings. At current share prices, the company also pays a healthy 2.44% partially franked dividend.

Domino's reports its half-year results next week, on the 20th of February. Given that market expectations can result in big share price swings, I tend to wait for high P/E companies to release major results and make a decision based on the fundamentals. Domino's has a great track record, profitable business model and strong market position. I expect Domino's to release another set of solid results and see it as a long term market beater.

Motley Fool contributor Lloyd Prout has no position in any of the stocks mentioned and expresses his own opinion. 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 Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »