Apple’s growth story is considered to be one of the stock market’s greatest rags to riches story, but what if I told you there is one FTSE 250 company that has achieved a better return than the US tech giant for investors over the past five years?
The company in question is Domino’s Pizza Group (LSE: DOM). Until this month’s profit warning, over the previous five years, shares in the fast food giant had produced a return of 174% compared to Apple’s return of 70% over the same period.
Go back further, and the return is even better. Since the end of 2008 to the beginning of March 2016, shares in Domino’s returned around 700% excluding dividends compared to Apple’s 900%. Even though for the longer term Domino’s has fallen behind, there’s no denying that these figures are extremely impressive.
But can the group continue this performance? There’s nothing to say that it can’t. So far the company has managed to avoid and outmanoeuvre the competition, which has only intensified recently as fast food apps reach more customers. The apps have helped connect thousands of smaller pizza shops to customers in their local areas, but Domino’s has continued to dominate.
At the same time, it has managed to remain relevant in an era where consumers are presented with hundreds of different takeaway options as well as options to eat out in restaurants.
The firm’s recent results confirmed this trend with statutory revenue rising 13.8% and statutory profit before tax increasing 9.9%. Overall system sales grew 14.5% and underlying profit before tax was up 17.1%. Unfortunately, these figures did not quite meet lofty city expectations and the shares fell following the release.
Nonetheless, the results clearly show that Domino’s growth isn’t going to slow any time soon. Consumers also appear to be spending more with the company. For 2016 average sales per address in new stores grew 15%. Meanwhile, online orders have grown rapidly and now represent 72% of system sales, up 21% year-on-year.
Further growth ahead
City analysts are expecting Domino’s to report another strong year of growth for 2017. They have pencilled-in earnings per share rises of 11% for the year. If the company hits this target, it will have doubled earnings per share in six years. Further growth is expected for 2018 with an expansion of 11% expected. Considering its historical and forward growth potential, shares in the company deserve to trade at a premium valuation multiple, and they do.
They currently trade at a forward P/E of 21.1, which may look expensive at first glance, but it is below the five-year average of 23.4. To put it another way, shares in Domino’s currently look cheap compared to history. With this being the case, and considering the company’s historical growth record, I believe the shares are attractive at current levels.
