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Domino's Pizza: Solid Company, Bad Price

Mar. 05, 2020 2:55 PM ETDomino's Pizza, Inc. (DPZ)2 Comments
Lukas Wolgram profile picture
Lukas Wolgram


  • Increasing consumer food delivery services will continue to put pressure on Domino's.
  • Domino's slowing growth rates are likely to continue going forward.
  • Domino's trades at substantially higher multiples than its peers, but no longer has the growth rates to support such high multiples.

Shares of Domino's Pizza (NYSE:DPZ) rallied after the company reported a GAAP EPS beat of $0.15 and a revenue beat of $20M for Q4 2019. Q4 marked the 104th consecutive quarter of international same store sales growth (nearly nine years) and the 35th consecutive quarter of U.S. same-store sales growth. While these are impressive numbers that indicate management knows what they're doing, the stock remains elevated at $338 per share. This puts shares over 35 times TTM earnings, and over 30 times expected 2020 earnings. leading me to believe that shares are too expensive for this company.

Source: Domino's History

Source: Domino's Pizza Fourth Quarter and Fiscal 2019 Financial Results Press Release

Delivery in Decline, Popularity in Pickup

For years, pizza was the classic delivery option. Domino's only had to compete with other pizza restaurants in the delivery game. The last few years, however, have seen multiple food delivery services pop up that allow for virtually any food a customer wants to be delivered straight to their door. This brings the competition for Domino's up substantially and will continue to do so indefinitely going forward, as these food delivery services are, in my opinion, here to stay.

Domino's has recognized this and thus has pivoted to a new option for customers. Pick up in-store, aka carryout. Domino's has strategically located stores to be close to consumers, making it easy for a customer to order online and pick up themselves rather than have it delivered. The company is in the process of rolling out technology to help with this, such as Pie Pass, which is supposed to make the carryout experience more efficient and consumer focused. This has had real, measurably positive results so far, as carryout order count increased 8.1% across the U.S. in total and 3.9% on a same-store basis in Q4 2019.

This article was written by

Lukas Wolgram profile picture
Check out my FREE substack newsletter Uncommon Profits here: https://lukewolgram.substack.com . Ranked #1 on Tip Ranks top 25 financial bloggers for accuracy as of January 1, 2021. I focus mostly on high quality small and microcap companies that I believe can double their stock price within 3 years (26% hurdle rate).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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