Holy Pepperoni Batman! Domino’s Pizza Sizzles…May 17 | Posted by Kevin Monaghan | Inside Trader Highlights
I remember hearing about Domino’s Pizza (DPZ) as a value play a few months ago. I had dismissed it as I personally didn’t like the food there or the industry in general as I thought pizza sales would slump for corporate pizza chains. Pizza Hut (YUM) and Papa John’s (PZZA) have seen sales and market share of the “medium-fast food” category slip in recent quarters. This trend is due to the fact that people are looking for other (healthier) alternatives and chains like Chipotle Mexican Grill (CMG), Panera Bread (PNRA), Baja Fresh, and many others. We don’t see that trend stopping.
One thing Domino’s has done well is expand internationally where they don’t have as much competition. This has paid off for them in the short term, but doesn’t give me confidence over the long term to enter at the current price levels. The weaker US Dollar and the low interest rate environment have helped their balance sheets too.
In hindsight, I’d love to have owned this stock during its uptrend, but the risk reward for a company with so many headwinds wasn’t worth buying at the time. The company has done a great job of managing itself during a difficult time for the pizza industry, but a healthy alternative restaurant like Panera Bread Co. (PNRA) gets me much more excited about the future than Domino’s does.
Disclosure: Author, Kevin D. Monaghan, Senior Partner at Elite Investment Group, has no positions in the above mentioned companies.