Grab a Slice of Domino's

11/04/2016 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

This new recommendation is the biggest pizza delivery company on the planet, blanketing all 50 states and over 70 countries, explains growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Domino's Pizza (DPZ) has a franchiser-owned business model (97% of stores are franchised) and strategic plan to grow its online and mobile ordering business has helped DPZ crush the competition.

In recent quarters, around 50% of orders have come through the digital channel. Customer loyalty is high, in part due to a new loyalty program, and DPZ has been vigilant about updating its menu to stay current with ever-evolving consumer tastes.

Just about everything DPZ has been doing is working. Revenue growth has topped 10% over the past two years.

And the latest quarterly release beat expectations on both revenue and earnings (revenue was up 17% and EPS of $0.96 beat by $0.06), suggesting DPZ will surpass 11% revenue growth this year and 12% in 2017. EPS growth should continue to hover around 20% per year.

While debt is creeping higher, DPZ’s share count is decreasing due to a share buyback program. Bottom line: the company is a finely tuned fast-casual dining machine, and the stock’s trajectory (it’s up almost 80% since the beginning of 2015) bears that out.

Given the performance, shares trade at a premium valuation, but big investors clearly believe the price is worth it as earnings are expected to crank ahead 20% for a long time to come.

DPZ crossed above its 50-day moving average at $125 in late April and has been in rally mode since. Prior to last Tuesday’s earnings release, shares were at 151.

A big beat in its latest earnings catalyzed a gap up from $151 to around $160, and buyers have since driven shares higher.

We expect a period of consolidation after the recent run, which should give new investors a chance to accumulate before the next leg up. Buy on the dips, and use a stop below the recent low of $150.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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