Domino's 4Q14 Earnings: Income Rises But Profit Margins Fall (Part 13 of 14)
Enterprise value
Domino’s Pizza (DPZ) has a market cap of $5.8 billion and is up against competitors that are huge in market cap—which is calculated through total outstanding shares times share prices. Yum! Brands (YUM), the parent of Pizza Hut, for example, has a market cap of $34.4 billion. McDonald’s (MCD) has a market cap of $95 billion. Papa John’s (PZZA), which is similar to Domino’s, has a market cap of $2.5 billion. We’ll look at the comps analysis in more detail in the next part of the series.
In the above chart, we see that Domino’s enterprise value (or EV) as of 4Q14 was $6.8 billion. Enterprise value is the total value of the company, calculated as market cap plus total debt less cash and cash equivalents.
Rising enterprise value
Domino’s enterprise value has been rising since 2012. Most of this rise comes from growth in its stock price. Part of the reason why Domino’s stock has done well is because of solid top-line performance. It’s been growing at an average of 13% year-over-year since 4Q12. This growth has trickled down to earnings per share, which too recorded solid average growth 16% year-over-year since 4Q12.
One of the many reasons why the company has done so well is that the US economy has been recovering since the recession between 2007 and 2009. As economic conditions improve, consumers’ willingness to spend on discretionary items such as restaurants increases. The company has also kept pace with product innovation and technological advancements to make the ordering process easier.
Domino’s competes with peers like Pizza Hut under the umbrella of Yum Brands ( YUM ), Papa John’s (PZZA), and McDonald’s ( MCD ). The C onsumer Discretionary Select Sector SPDR Fund ( XLY ) holds ~1.5% of YUM and ~4% of MCD . In the next part of this series, we’ll see how Domino’s compares to these peers in terms of stock performance.
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