If I were a betting man, I’d wager that pizza is probably the most common food on the average person’s list of favorite dishes. My evidence? Look at Domino’s Pizza(NYSE: DPZ )A stock that has turned fast, cheap pizza into fortunes for long-term investors. A modest $1,000 investment in 2004 would be worth more than $54,000 today, returning more than 50 times your money in 20 years.
Winning stocks often continue to win, but you shouldn’t buy a stock just because it did so well in the past. It does not guarantee anything about the future.
Instead, consider buying Domino’s Pizza stock like there’s no tomorrow — today, for these five reasons.
Pizza is on my list of favorite foods, but I think the reasons resonate with a lot of people. Pizza is arguably the perfect take-out food. For starters, it’s much easier to order a transaction than to create it yourself. Even if you have cooking skills, you’re talking about multiple ingredients, a mess, and time spent preparing and cooking it. You can have a hot pizza from Domino’s in minutes.
Second, it is remarkably customizable, which gives it broad appeal to the average person. As long as you like bread and cheese, you probably like pizza. You can change the cheese and toppings to make it however you want. Third, it has become an economical way to feed the masses. Have a family of children? Go to a fast-food burger joint and pay four or five meals compared to a large Domino’s pizza. The explosion for deer is almost unbeatable.
Why has Domino’s done so well in a market with competition on nearly every street corner? It boils down to speed, price and quality. People might not think Domino’s tastes as good as the food at their favorite mom-and-pop pizzeria, but Domino’s has mastered giving customers a quick, inexpensive meal that’s delicious enough to win your business.
The company has technology advantages including an app and website where you can order and even track your order through the kitchen and to your door. Domino’s has steadily increased its market share in the United States, from 13.5% in 2015 to 22.9% last year.
Domino’s may continue to take market share as it further penetrates the market. The company plans to increase its store count from:
6,930 to 8,500 in the US.
More than 14,032 40,000 in international markets.
In other words, the company’s proven business model can span many years, so growth doesn’t seem to be a concern anytime soon. Analysts predict that the business will grow earnings at an annual rate of 11% over the long term.
Domino’s A Franchise business model, meaning it sells its brand and intellectual property to store owners, known as franchisees. Domino’s receives a franchise fee, plus a small royalty on each store’s sales. The advantage is that it transfers most of the costs of opening and running the stores to the franchisee, resulting in stable income for Domino’s. McDonald’s is the same
Although Domino’s hasn’t paid its dividend for as long as McDonald’s has, it continues to be an impressive dividend stock. It yields just 1.4% on its current share price, but makes up for it with impressive growth. The company has increased its dividend for 12 consecutive years, with an average increase of 18% over the last five years. The dividend is just 36% of Domino’s estimated 2024 earnings, so you can count on the checks to keep coming (and growing).
Known, market-beating stocks are rarely bargains. As Warren Buffett famously said, it is better to buy great companies at fair prices than fair companies at low prices.
Domino’s Pizza trades at a forward price-to-earnings (P/E) ratio of just under 24. I like to use the price/earnings-to-growth (PEG) ratio to compare a stock’s valuation to its expected growth. Based on analysts’ consensus 11% growth estimate, Domino’s PEG ratio is about 2.2 today. It’s not cheap, but I generally feel comfortable buying high-quality stocks at a PEG ratio of 2.0 to 2.5, so it’s not ridiculous.
Ironically, Warren Buffett’s Berkshire Hathaway Recently Initiated a short position in Domino’sDespite extensive sales to raise more cash. No one should buy or sell a stock based solely on what someone else does, but it’s an unfortunate coincidence that Buffett also likes stocks.
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Justin Pope No position in any of the stocks mentioned. The Motley Fool owns positions in and recommends Berkshire Hathaway and Domino’s Pizza. Motley Fool has a Disclosure Policy.
