Should you buy Domino’s shares right now?

Should you buy Domino's shares right now?

Domino's shares have recovered since the early stages of the pandemic. Stores globally are re-opening but are its shares in the buy zone?

Phil Harpur

Phil Harpur has been contributing to Motley Fool Australia as a Freelance Writer since late 2019. Phil has spent the last 25 years working as a Senior Technology Analyst for some of the leading global technology research firms. Over the years, his market insights have been quoted in publications such as the AFR, SMH and the Australian, and he has appeared on business TV programs including Bloomberg, CNBC, Fox Business and the ABC. Phil is passionate about the share market and investing. He has post-graduate qualifications in Applied Finance and Investment from the Securities Institute of Australia. In his spare time, Phil likes to chill out listening to his favourite jazz artist or hanging out at the beach.

Published June 18, 2020 12:05 pm AEST

The Domino's Pizza Enterprises Ltd. (ASX: DMP) share price has proved to be fairly resilient during the coronavirus crisis. Domino's shares dropped as low as $41.66 in the early phase of the pandemic to be now trading back at $64.11.

Domino's felt less of an impact than other global fast-food restaurant chains and stores who were required to close and are only now beginning to re-open.

So, does the Domino's share price offer value to investors right now?

Picture of a Domino's pizza. — Image source: Getty Images

Getting back on track as coronavirus restrictions ease

Domino's most recent market update was in late April. It revealed that Australian store sales had been generally consistent prior to the crisis, with a small impact on local trading conditions. France, which one of the worst-hit European countries during the early phase of the crisis, had begun re-opening its stores. New Zealand stores have also re-opened and stores in Japan and Germany were able to maintain strong sales growth during the worst of the crisis.

Domino's had a key advantage over other fast food restaurant chains during the crisis as it doesn't typically offer patrons a sit-down service. In addition, in-store pick-ups tend to be fast as they are optimised with an online ordering app with accurate pick-up times. Dominos also does a lot of home deliveries compared to other fast-food chains.

This last update from Domino's was 2 months ago. With lockdown restrictions easing in its operating markets, I think that trading conditions have likely picked up further.

Medium-term growth outlook

Domino's did not provide any short-term guidance in its April update. However, it's anticipating solid growth over the medium term. It forecasts new store openings to be in the range of 7% to 9% per year and store sales growth to be between 3% to 6% per year.

So, are Domino's shares in the buy zone right now?

The Domino's share price regained all its losses during the early phases of the pandemic. It is also trading close to 12-month highs, so it's not cheap from a short-term perspective. However, it's important to note that it is currently trading well below its all-time peak in mid-2016.

I believe there's strong potential for Domino's shares to increase over the next 5 years through growing sales and a strong pipeline of future store openings.

So, despite some possible short-term headwinds due to the coronavirus, I believe its share price is a buy right now.

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