Is the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price a buy for return-hungry investors?
Domino’s Pizza Enterprises is the largest pizza chain in Australia in terms of both network store numbers and network sales. It is also the largest franchisee for the Domino’s Pizza brand in the world. The company holds the exclusive master franchise rights for the Domino’s brand and network in Australia, New Zealand, Belgium, France, The Netherlands, Japan, Germany and Luxembourg with more than 2,400 stores.
Why Domino’s shares are down 43%
Domino’s shares have dropped 43% to under $44 over the past two and a half years, which is painful for any shareholder to stomach.
Between the GFC and mid-2016 Domino’s was delivering piping hot returns for shareholders every year as the profit and share price grew substantially. The share price went from under $3 to over $76.
However, a reduction in the revenue growth rate has seen investors drop how much profit growth investors are baking into the share price. Accusations of underpaying employees didn’t help, nor has the idea that recent domestic store openings are cannibalising existing stores’ sales.
The FY18 wasn’t a bad result. Most companies would be happy with profit growth of 15%, however management had guided for it to be in the region of 20% growth.
Same store sale (SSS) growth in Australia & New Zealand guidance had been for 6% to 8%, but it came in at 4.5%. SSS for Europe was guided at 6% to 8% as well, but it was just under the goal at 5.7%. Japan was about on track – SSS guidance was 0% to 2% and it achieved 0.9% growth, but that’s obviously a low figure.
In FY19 the pizza company was predicting SSS growth for the group of 3% to 6%, new organic store additions of between 225 to 250 and EBIT of $227 million to $247 million (click here to learn what EBIT means).
On a three-to-five year outlook the company is aiming for 3% to 6% annual growth of SSS, annual store growth of 7% to 9% and annual net capital expenditure of $60 million to $70 million.
Over the next six years it wants to grow its ANZ store count from 819 to 1,200, the Europe network from 1,054 to 2,600 and the Japan network from 520 to 850.
Is the Domino’s share price a buy?
If it can achieve all of the above goals then it could generate decent investment returns from this price, particularly if it’s able to automate more of the cooking and delivery of orders.
However, I’d be more comfortable considering buying shares if the share price was below $40, or at least a fair bit closer to $40. I think there are ASX shares with brighter international growth prospects such as the ones mentioned in the free report below.
2 ASX growth shares making hotter returns than Domino’s
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