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Why the Domino’s share price has my attention

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has surged nearly 80% from its lows in late-March and is currently trading near record highs. The positive price action reflects how high demand for convenience food has been during COVID-19 lockdowns.

Here’s why the Domino’s share price has my attention for 2020 and beyond.

How did Domino’s perform during the pandemic?

At the height of the pandemic, Domino’s was forced to close all stores in its nine markets. Apart from France and New Zealand, where even takeaway orders were banned, the company could only operate to provide delivery and online orders. In order to maintain health and safety standards during the height of COVID-19, Domino’s implemented a range of initiatives including ‘zero-contact’ delivery.

In the company’s last update in late April, Domino’s noted that operations in France and New Zealand were progressively re-opening. The company also highlighted that operations in Japan and Germany saw strong sales performance, whilst same store sales in Australia remained positive but noted that stores were being affected unevenly.

Why the Domino’s share price has my attention

Domino’s Pizza in the United States recently reported its full-year results which was highlighted by a 16% increase in same-store sales. Although Domino’s in Australia and the US are two separately listed entities, the company’s performance in the US could reflect similar consumer behaviour in other markets. In a trading update in April, Domino’s Australia reiterated its target for 3% to 6% annual, same-store sales growth and a 7% to 9% increase in new stores each year over the medium term.

In my opinion, there are multiple tailwinds that could benefit the Domino’s share price in 2020 and beyond. The pandemic has forced consumers to turn to brands that they can trust to uphold hygiene and delivery standards. In addition, with economic conditions in the future looking volatile, the affordable goods offered by Domino’s could become more appealing.

The pandemic has also accelerated the shift to online with operational markets reporting a material shift to food delivery demand. This has resulted in stores hiring more team members to help adapt to the change. In addition, the pandemic has reinforced the fortressing growth strategy of Domino’s which involves opening more stores in existing sales areas. With large seating restaurants expected to continue suffering post-COVID, this strategy could help Domino’s through its operation of smaller stores whilst also decreasing its delivery times.

Is the Domino’s share price a buy?

Domino’s is expected to report its full-year earnings for FY20 on Wednesday 19 August. The company has not provided any short-term earnings guidance, so I feel the most prudent strategy would be to wait on the side-lines before investing.

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Motley Fool contributor Nikhil Gangaram 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.

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