In This Article:
Like bargains? Most people do. After all, why pay more when you can pay less? The idea even applies to investing -- the cheaper the stock is when you buy it, the bigger your potential returns.
With that backdrop, investors shopping for a new growth stock to add to their portfolio may want to consider stepping into Domino's Pizza (NASDAQ: DPZ) while shares are down 20% from last June's peak. That may be all the discount you're going to see for a while.
Domino's Pizza? Really?
It's admittedly not a top-of-mind growth stock like Nvidia and Amazon are. Indeed, even when it's firing on all cylinders, it may never dish out the double-digit growth many technology powerhouses are delivering these days.
But what Domino's Pizza lacks in raw growth potential, however, it makes up for in consistency and predictability.
The pizza chain has been in business since 1960 and grown to more than 21,000 global locations, making it one of the biggest and most beloved names in the restaurant industry. Pizza is also one of the world's most popular foods with each region putting its own spin on the dish. That explains why roughly half of Dominio's sales come from outside the U.S. where pizza is just as popular as it is here.
And market research outfit Technavio believes the global pizza market will grow at an annualized pace of nearly 7% through 2029, outpacing the overall restaurant industry.
But is Domino's Pizza positioned to capture some of that growth? Yes, it is.
Why Domino's Pizza stock is the best option
Although bigger doesn't always mean better in investing, in this case, Domino's dominant size provides it with the fiscal wherewithal to expand aggressively. Its $5.0 billion in debt may seem like a lot for a $15.6 billion company, but it generated $1.4 billion of operating cash flow in the past year. Its scale also comes with the benefit of a bigger marketing budget but less per-restaurant spend.
The way the pizza delivery and pickup business works is also compelling.
Pizza ingredients are relatively cheap, and Domino's menu is relatively simple. This allows locations to operate with a minimal amount of staff and cost. Pizzas can also be prepared and cooked in a relatively small footprint. These advantages continue to attract franchisees, which run 99% of Domino's locations. Meanwhile, the company enjoyed a 39% gross margin and 19% operating margin through the first three quarters of fiscal 2024. Those are enviable numbers in the restaurant business.
Analysts expect the pizza chain to continue growing at an industry-beating pace for the next several years.