The Motley Fool

Why Domino’s share price is smashing the market

The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price is up by 27.4% year to date (YTD). In contrast, the S&P/ASX 200 (INDEXASX: XJO) is down by 11.8% YTD, a difference of almost 40%.

During the past decade, it was one of the fastest-growing companies on the ASX. In fact, an investment at the start of 2010 would have multiplied 13.5 times by now.

Even though it has already seen a lot of growth, I believe the company still has strong growth ahead of it, and below I’ll share why.

Domino’s grew sales by 29.5% in 2019 and it is the leading international franchisee of Domino’s Pizza, Inc. (NYSE: DPZ). Within Australia, it is the largest pizza chain both in terms of network store numbers and network sales. Moreover, the company also holds the exclusive master franchise rights for the Domino’s brand and network in Australia, New Zealand, Belgium, France, Netherlands, Japan, Germany, Luxembourg and Denmark.

Domino’s share price and performance

The company has withdrawn its earnings forecast for the year due to the pandemic. In April the company’s share price started to rise after previously closed stores started to reopen, though the company was quite opaque about revenue and earnings levels. Notably, they advised that Japan and Germany maintained its strong sales performance. They also stated that same-store sales remained consistent for Australia and Europe. 

However, the company continues its medium-term outlook. Its new store openings were +7 to 9% per year, same-store sales were +3 to 6% per year and net capex was $60–100 million per year.

The compound annual growth rate (CARG) for Domino’s sales is 21.9%. In addition, the company has a very strong balance sheet. 

I first became interested in Domino’s as a company around 2016. I started to learn about how the company took notice of its critics and totally reinvented itself from the ground up from 2010. It rebuilt its pizzas, acknowledged the importance of transport, and built a digital e-commerce ordering platform.

The most brazen move by the US parent company was to open a Domino’s in Italy, the ancestral home of pizza!

Foolish takeaway

A company that has the courage to listen to its critics and rebuild itself from the ground up is a company that I am very interested in. The Australian master franchisee has a massive territory with a lot of room left to grow in large European markets. Its financial history tells the story of a company that is well managed and is perpetually on a growth trajectory. I personally think the Domino’s share price is underquoted, even though it is nearing previous high levels. 

3 "Double Down" Stocks To Ride The Bull Market

Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

He's so confident in their future prospects that he has issued "double down" buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.

*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. 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.

Related Articles...

Latest posts by Daryl Mather (see all)