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Domino’s Pizza Delivered 32% Profit Growth Last Quarter

Stock (Symbol)

Domino’s Pizza (DPZ)

Stock Price

$173

Sector
Food & Necessities
Data is as of
November 12, 2017
Expected to Report
Jan 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
David SharekDomino’s (DPZ) continues to deliver strong results, but the stock is off its highs on concerns about same-store sales growth (SSS). Last qtr, SSS growth was 8% in the U.S. and 5% Internationally. The company had been doing double-digit SSS so the deceleration has caused investors to be more cautious on the stock, which in turn has fallen from the $220s to the $170s.

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 96 straight qtrs of positive same store sales growth (SSS) including 12% SSS growth in 2015 and 11% in 2016. 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 taking advantage of this dip to to buy it for for the Growth Portfolio and Aggressive Growth Portfolio. This stock had a P/E in the 30s earlier this year and now the stock has a P/E of 25 when I look to 2018 estimates. I think the P/E should be 30 and my Fair Values for the next two years are $207 and $244. 

One Year Chart
Nice dip this stock is on, and I needed it as I have been missing out on this market leader. Last qtr the company was expected to deliver 24% profit growth and instead shelled out 32%. Afterwards, estimates increased across the board.

Now qtrly Estimates are for 33%, 21%, 16% and 23% profit growth the next 4 qtrs.

Fair Value
This stock had a median P/E of 31 and 32 the last two years, and even though growth could slow in 2018 I still feel DPZ is worthy of a P/E of 30. That gives the stock decent upside into next year.

Also, 2018 estimates have increased from $6.43 to $6.61 and $6.89 the past three qtrs. 

Bottom Line
Domino’s has been one of the best stocks of our time, and now its on a dip. Is this the end of the run? I don’t think so because the company is taking moderate sales growth and turning it into above average profit growth. Also the stock buybacks could push results past expectations.

Last qtr I stated I would like to buy in below $180 and this qtr my dream came true.

DPZ will be added to the Growth Portfolio and Aggressive Growth Portfolio where it will rank 14th in the Power Rankings.

Power Rankings
Growth Stock Portfolio

14 of 36

Aggressive Growth Portfolio

14 of 16

Conservative Stock Portfolio

N/A

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