Stock (Symbol) |
Domino’s Pizza (DPZ) |
Stock Price |
$192 |
Sector |
| Food & Necessities |
Data is as of |
| August 2, 2017 |
Expected to Report |
| Oct 16 |
Company Description |
 Domino’s Pizza, Inc. is a pizza restaurant chain company. As of January 1, 2017, the Company operated in over 13,800 locations in over 85 markets around the world. The Company operates through three segments: domestic stores, international franchise and supply chain. Its basic menu features pizza products in various sizes and crust types. Source: Thomson Financial |
Sharek’s Take |
 Domino’s (DPZ) is off its highs this qtr, as the stock dropped from the $210 level to $180 or so then rebounded to a current $206. The issue with DPZ is International same store sales (SSS) were just 3%, down from 4% the qtr earlier. Still, total SSS were 10% which matched the figure from my last report. The issue with the stock is the P/E is around 35 and the Est. LTG is just 18% a year. Profit have been growing around 25% to 35% the last couple of years as people (1) utilize the easy-to-use Domino’s app and (2) stay at home. Also helping sales are chicken and pasta add-ons. The question is: will growth moderate next year (to like 18%) and if that’s the case will the P/E come down to a more reasonable level, like say 25? Founded as a single store in 1960, Domino’s is the world’s #2 pizza chain and #1 pizza delivery chain. It generates sales and profits by charging franchisees royalties and selling them food & equipment. Half DPZ’s sales come from the US, Half internationally with the Intl store count jumping from 4835 to 8440 during 2011-2016. DPZ has been one of the market’s top stocks the past decade. And the reason was better food and new technology. In 2009 the company changed its pizza recipe (as the pizza tasted bad) and in 2011 improved its chicken items, cheesy bread, and launched a new app with Pizza Tracker. DPZ broke out on May 5, 2011 when it jumped from $19 to $21 after the company reported profit growth of 20%. Profits surged 25% in 2011. Domino’s has logged 95 straight qtrs of positive same store sales growth (SSS) including 12% SSS growth in 2015 and 11% in 2016. Intl SSS was 7% in the year-ago period and the slowdown to 3% last qtr is what’s concerning investors. But still the company beat profit estimates and future estimates rose so everything is good — except the high P/E. Also, management buys back hundreds of millions of dollars in shares in addition to paying a dividend of 1%. DPZ is a top-tier growth stock and I’m dying to buy it for the Growth Portfolio. But if the stock were to get chopped next year the stock could fall. Or if the P/E goes to around 30 it could be around this price a year from now. When these charts were done on 8/2 the stock was $192, the stock was 6% over my 2017 Fair Value of $180 and had 10% to 2018’s of $212. With DPZ $206 today I’m going to keep the stock on the radar. |
One Year Chart |
 When this stock dipped in July and August I should have gotten in. But qtrly profit Estimates were for 24%, 27%, 16% and 10% profit growth the next 4 qtrs and I felt growth could slow and the P/E would then decline — leaving the stock maybe around $175. But estimates are on the rise (2017’s just increased from $5.42 to $5.64). Last qtr sales grew 15% and profits increased 35%, which beat estimates of 24%. I now wish I would have bought on the dip shown here. Since this chart was made the stock’s gone up to $206. |
Fair Value |
 Ant at $206 there’s not much upside to mu 2018 Fair Value of $212 — which is a P/E of 32. That’s still a high P/E for a restaurant. |
Bottom Line |
 Domino’s has been one of the best stocks of our time, but a lot of the growth in the stock can be attributed to the rise in the P/E. And I feel the 30-something P/E is short-term, and eventually the P/E will decline into the 20s. The problem is that’s not happening now with DPZ delivering 10% same store sales growth, beating the street, and upping profit estimates. This stock is on my radar, and I keep it at the top of my radar. I would love for it to come down below $180 to buy in. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
