3 Things to Know About Domino's Pizza Stock Before You Buy
Sunday, Dec 15, 2024 5:05 am ET
3min read Domino's Pizza (NYSE: DPZ) has been a popular choice among investors, with its stock price rallying after Warren Buffett's Berkshire Hathaway disclosed a stake in the company. Before you consider buying Domino's Pizza stock, here are three key aspects to keep in mind.
1. Domino's is exhibiting better growth lately
Domino's Pizza has shown improved performance in recent quarters, with comparable-store sales rising 5% in the third quarter of 2024. This growth follows a period of below-4% annual comps growth over the past three years. The company's strategy of focusing on carry-out and delivery orders, along with its international expansion, has contributed to this rebound. Keep in mind that this growth comes despite a pressured global marketplace, indicating the company's resilience.
2. Domino's maintains an efficient business model
Domino's Pizza has one of the most profitable businesses in the fast-food industry, with an operating profit margin of almost 19%. This efficiency is driven by the company's tiny store footprint, which focuses entirely on carry-out and delivery orders. The menu is not complicated, requiring relatively few ingredients and simple preparation methods, which helps keep costs and prices low. This business model allows Domino's to generate ample cash flow, which can be redirected toward high-return areas like international expansion.
3. Domino's stock is only right for some types of investors
Domino's Pizza stock may not be suitable for all investors, as its valuation is in line with its historical range. With a price-to-earnings ratio of around 28 and a price-to-sales ratio of 3.5, the stock is fairly priced compared to its peers. While Domino's has a good chance of winning more market share in the competitive fast-food industry, especially in promising international markets, it could struggle to produce sustainably strong earnings growth if more competitors dive into home delivery. This could limit investors' returns from here.
In conclusion, Domino's Pizza stock offers an appetizing deal for some investors, with its efficient business model and recent growth. However, it may not be the right fit for all investors, depending on their risk tolerance and investment goals. Carefully consider these factors before making a decision to buy Domino's Pizza stock.
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