Takeaways on the rise
Domino’s is currently the UK’s leading pizza brand and has a strong presence in the Republic of Ireland too. Since arriving on these shores back in 1985 from the US, Domino’s has amassed over 1,200 stores throughout the UK and Ireland.
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As I write, Domino’s shares are trading for 429p, whereas at this time last year they were trading for 333p. This is a 28% return over a 12-month period.
Shares are up today by over 20% after the company announced a resolution with many of its franchisees that will see Domino’s work closer with them to increase performance and enhance operations, but most importantly, share more profit.
Why I like Domino’s
Most of my best stocks to buy now have similar characteristics. One of these is the fact that performance recently and historically has been good. I understand that past performance is by no means a guarantee of the future but I use it as a gauge to review investment viability. I can see that Domino’s revenue increased year-on-year for three years between 2017 and 2019. 2020 levels fell slightly short, most likely due to the pandemic. Gross profit has increased for four years in a row year-on-year.
Coming up to date, a Q3 update released in October showed that total sales were up nearly 10% compared to the same period last year. Domino’s also opened five new stores in the quarter and its momentum towards digital platforms continues with new app sign-ups growing.
Today’s announcement by Domino’s is positive. Franchisees have long disputed the old model of profit sharing as well as operational issues. The breakthrough in talks and subsequent agreement will only make Domino’s a better company in my eyes. The directly run stores and franchised operations will work in tandem and all pull in the same direction towards better performance and increased profitability. This should also boost investor returns.
Domino’s shares look cheap right now too. At current levels, Domino’s has a price-to-earnings ratio of just 17. In addition to this, it has a dividend yield nearly double the FTSE 250 (the index in which it resides) average of 1.9%. The shares could help my portfolio make a passive income.
The best stocks to buy now have risks too
Current macroeconomic issues could hamper Domino’s progress. Rising inflation and costs could eat away at margins and any potential returns. If these costs are passed to the customer, these customers may be lost to the competition. In addition to this, the current supply chain crisis and shortage of HGV drivers could also disrupt operations throughout the UK and beyond.
Overall Domino’s is a cheap share with the ability to help my portfolio to make a passive income and has a favourable track record. I believe today’s announcement only makes it a more enticing prospect. I would add Domino’s shares to my portfolio at current levels. FY results are due early next year and I wouldn’t be surprised to see them to surpass pre-pandemic levels.