Stock of the Week: Get a Piece of This Profit Potential

|December 9, 2023

Did someone order pizza?

You’ll sure want to after watching today’s Stock of the Week video.

This company is far more than just another pizza chain. It’s a global juggernaut that generates $17.7 billion in diverse revenue streams across 90 countries.

But the real story is in the numbers…

With a best-in-class 33% cash return on capital invested and rising profits, this company is a fine-tuned money machine that spits out cash for dividends, buybacks and intelligent growth.

And despite headwinds, it still produced market-beating returns this year with below-average volatility.

This stock is an underappreciated blue chip primed for a rally.

Get all the details – including the ticker – in this week’s video.

Click on the image below to watch it.

Transcript

Hello friends and Manward family… and GVI Investor subscribers as well.

The Stock of the Week this week – and you might think, “Alpesh, where are you getting this from?” – is Domino’s Pizza (DPZ). And I’ll tell you where I’m getting it from, and it’s an important lesson…

Data.

Don’t care about narratives. Care about data. And you might say, “Wait a minute, how come it’s not an AI company with some great backstory? How come it’s a 1960s pizza restaurant chain?”

Numbers, you’ve got to look at the numbers. And sometimes these are overlooked by people.

Well, it’s a famous company. You all know it. It’s publicly traded, obviously, on the New York Stock Exchange in this case. It had $17.7 billion in sales in 2022. $17 billion. It’s the largest player in the global pizza market, ahead of Pizza Hut, Little Caesars, of course, and Papa John’s. The latter two are tiny compared to, say, a Pizza Hut.

So Domino’s is dominating. It’s got 20,000 stores in 90 international markets around the world. We’re talking diversification. And it’s growing.

Gross profits for the 12 months ending September 30 of this year were $1.7 billion. That’s gross profits of $1.7 billion. And that’s an increase over the previous year. Its market cap is $12 billion.

It’s a pizza company. But it’s not just a pizza company, as you well know. It’s a whole system. It’s a system. It’s dividend-paying, and that’s good. And dividends have been stable over the last decade.

Now, on my Growth-Value-Income rating, it’s a 7. That’s my proprietary rating, which looks at the valuation of a company, the revenue growth of a company, its dividend yield. A score of 7 meets our minimum criteria.

Forecast P/E is a multiple of 25. It is, I grant you, a little bit expensive on that.

However, cash return on capital invested – and that’s really important because it’s what’s used by Goldman Sachs Wealth Management, as you’ll know, and there’s an explanation right here of that – is 33%. It is churning out cash based on the capital it invests.

And you might say, “Well, why?”

Well, actually, major expenses are staffing and marketing. Beyond that, pizza ovens don’t need replacing that often. So cash return on capital invested… nice and high.

It’s been doing well over the last few months. Sortino is a bit low. That’s the average return versus risk. I would’ve liked to have seen that higher.

But volatility is under 20%, which I like. And it’s been outperforming the broader market.

So where is it? How does it look? Now, I expected this, earlier in the year, to have given me a 47% return. Well, I expected this, back in really around July time, to have started giving that. And then, of course, the market pulled back. So I think we delayed that rise. So I’m still expecting a good return over the next 12 months.

Now, on a discounted cash flow basis, I’m afraid it’s overvalued. Can’t have everything. The reason I mention this is because, obviously, those who are on my GVI Investor know we go into a lot of depth on every single factor. We want everything to line up. On the Stock of the Week, sometimes there’ll be things which don’t quite line up, like discounted cash flow. Nevertheless, it’s a good, interesting company.

And it reminds me to some extent of Chipotle, which as I’ve said before, is an AI company. Because if you can use AI to get – as Chipotle has done – all that processing right, you’ve got so much more potential.

And I suspect you’re going to hear the word AI, the letters AI, associated with Domino’s more and more going forward as well. They’re no fools.

Thank you very much.