![]() ![]() Companies like McDonald’s and Burger King owner Restaurant Brands International (NYSE: QSR) have benefited from franchising more restaurants. The final risk is one facing the entire industry. And it hardly suggests that the company’s business model is facing an existential threat. But 6% still is more than enough growth to leverage expense growth and expand margins. That’s not necessarily a surprise, however, given the tougher competition. The company’s comp-sales growth has decelerated from 12% in 2015 to 6% in 2018. In turn, other chains now offer delivery, including casual dining giants like Brinker International (NYSE: EAT) and Dine Brands Global (NYSE: DIN).īut as that trend has accelerated lately, Domino’s sales don’t appear to have suffered. The rise of online ordering services like GrubHub (NYSE: GRUB) and DoorDash has allowed thousands of restaurants to offer delivery services, breaking pizza’s traditional dominance of that space. The first is that on the whole there’s much more competition in the pizza industry than ever before. But it clearly has a better business ten years later, and its emphasis on low price points could mitigate the macro pressures on it, particularly domestically. Domino’s struggled during the financial crisis: its same-store sales declined 4.9% in 2008. The most obvious one is the potential for recession in the U.S. Any outperformance – or a continued willingness by investors to pay up for DPZ stock – sets up a path for DPZ to reach $500 and beyond.īut there are risks facing DPZ stock. Even assuming that the P/E ratio of DPZ stock drops in several years as DPZ matures, investors will still have an easy path to double-digit annual returns, including dividends. The company’s 8%-12% revenue-growth guidance, then, suggests that its earnings easily could increase 100% or more over the next four or five years. For 2020, for instance, analysts’ consensus estimate calls for a 9.8% increase in sales and an 18% increase in EPS. And the leverage on Domino’s balance sheet further boosts its net margins. Store-level costs are borne by franchisees, enabling DPZ’s operating margins to rise faster than its revenue. On the other hand, 8%-12% growth might not sound like much, since DPZ stock has a trailing-twelve month P/E ratio of 29.īut because of DPZ’s franchise model, 8%-12% revenue growth results in earnings and cash-flow growth that’s much higher than that. The company’s overseas business continues to grow, in terms of both comparable stores and new opportunities.ĭPZ still expects its annual retail sales to rise 8%-12% over the next few years, with its global comparable sales increasing 3%-6% and its net store count rising 6%-8% annually. That’s been a successful strategy despite fears that new stores might “cannibalize” existing stores. That trend should continue, and Domino’s can benefit from opening new stores, as well. No major chain, in fact, is coming close. No major chain’s same-store sales are increasing as rapidly as those of DPZ. McDonald’s (NYSE: MCD) same-store sales rose 2.3% in Q4, and most investors thought its results were good. Meanwhile, Pizza Hut’s comparable-store sales were unchanged. same-store sales rose 5.6% year-over-year. Indeed, during the company’s “disappointing” Q4, its U.S. Yet Domino’s keeps growing at impressive rates. Papa John’s (NASDAQ: PZZA) sales are collapsing. Yum! Brands’ (NYSE: YUM) Pizza Hut’s growth has stalled out in recent years. The Case for DPZ StockĭPZ simply has come to dominate the pizza business. DPZ stock isn’t cheap, but stocks like this shouldn’t be, and they very rarely are. But those risks seem manageable, as Domino’s is well-positioned to handle any challenges ahead. ![]() Given its franchise model and the leverage on its balance sheet, its higher revenues will have an amplified effect on its earnings.ĭPZ is still facing risks. Between the company’s same-store-sales growth and the new stores it will open, its revenue should continue to increase nicely for years to come. And given that DPZ stock has tanked lately in part due to its big Q4 earnings miss last month, it’s a multiple that might not seem all that attractive.īut DPZ has plenty of room to grow into that multiple. That’s a huge multiple for a relatively mature company. Indeed, DPZ stock still trades at over 22 tines analysts’ consensus earnings per share estimate. Domino’s Pizza stock, even after its recent selloff, is hardly cheap. ![]()
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