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How Domino's Pizza Will Turn Into Chipotle Mexican Grill

|Includes:CMG, Domino's Pizza, Inc. (DPZ)

Stocks Mentions: Domino's Pizza (DPZ), Chipotle Mexican Grill (CMG)

Over the past year Domino's Pizza (DPZ) has embarked on a mission to serve better quality food to satisfy the customer.  One of these gimmicks have been to have people take photos of the pizza they recieve and post it online.  In doing so this would show the CEO, J. Patrick Doyle, to see if the resturants are living up to expectations and make changes if needed.  This plan is much better than handing out surveys for people to fill out because quite frankly nobody wants to fill out a survey with no real compensation.  Therefore allowing people to upload photos of the beautiful pizzas they get everybody can see what kind of food Dominos Pizza serves.  Also, the company is able to show these photos in their commercials, which in turn shows a greater audience the food that is being served.

In the past many people have dubbed Dominos Pizza as having "cardboard" crust and far from fresh ingredients, particularly the sauce.  Dominos took note of these comments and started a mission to show they have fresh ingredients that are great tasting and good for you.  One way they did this was change the sauce that is on the pizzas.  I can admit from my own experiences that the sauce is much better than it was years ago.  So I believe they probably did begin using fresher ingredients to make the sauce.  Not only did they rename the sauce to "Robust Inspired Tomato" sauce, but they advertised that so people know that they changed the sauce.  Since they knew that one of the biggest complaints was the fact that the sauce never tasted that fresh and that it probably comes from a can.  Now I think saying it comes from a can is a bit ridiculous, but I do believe they changed the sauce for the better and it is showing by surge in the stock price.  Another change with the pizzas is that they added garlic to the crust. Therefore it is almost like you are getting a pizza with garlic bread, but only paying for the pizza.  The company does not advertise this as much as the other promotions, but this is something that has changed for the better.

Another more recent promotion they have started is the new chicken recipe.  Anybody who watches television has probably seen the humurous commercials about the new boxes for the chicken that lets you decide how much you enjoyed the chicken.  This new promotion has caused the stock price to recently eclipse the 52 week high yet again.  It is quite remarkable how Dominos was not hit too hard by the recent downturn in the market, comparably to other companies.  Some think that stocks such as Dominos will not keep motoring along, however I believe it will keep going because the price of the stock is undervalued.  It may not be undervalued to the current level of the company, but it is undervalued if you look at the potential of the company.  Since right now Dominos has not expanded on a huge global level yet, so when they do that, we will see even higher revenue.

One of the problems with Domino's is the fact that commodity prices are rising, so it is becoming difficult for them to maintain the level they are at right now.  But I think they can get past that bump because as I said, the stock price is too low.  I know it is difficult to buy into a company that has been eclipsing 52 week highs on a weekly basis, but sometimes you have to realize that some companies have the ability to keep gaining with no bound.  I would warn you to wait to buy Domino's right now because they just hit a 52 week high today, but I would say on a $0.50 pull back it would look enticing.

Another resturant that is well known for fresh ingredients is Chipotle Mexican Grill (CMG).  This company has had quite the explosion over the past few years.  Investors who bought into the great idea from the onsight are very happy right now.  However, this company is a perfect example of how Dominos has plenty of room to keep growing.  Chipotle is over $240 per share and Dominos is only at $18, and I do not see any reason why Dominos can't reach that level in 10 years.  Since J. Patrick Doyle is doing a great job at moving the company in a forward direction by using fresher ingredients.  One of the biggest thorns in Domino's side is the fact that pizza is deemed an unhealthy food; while the food Chipotle serves is relatively healthy.  This is a huge difference in modern times because right now there is a massive wave of healthier eating habits due to the obesity epidemic.  On the contrary, a wise investor will look at the fact that the obesity epidemic is in full swing which means that more people are looking to buy pizza on a more consistant basis, which leads to more sales for Dominos.

The key point to take away from this is that resturants are great investments at times.  Since the long term growth is sometimes not where it should then you have to do extra research and keep checking on the company over time to see if the results are moving forward or stagnating.  If you start to see any form of slowing in the growth of the company than it is better to pull out while you can.  However, Domino's is a great opportunity to make a substantial amount of revenue over the next 3-5 years.

 

Disclosure: I have no positions on the companies mentioned above.

Stocks: DPZ, CMG