Can a company really make hundreds of millions from primarily selling pizza? Well Domino’s Pizza Group (LSE:DOM) has been doing this for decades. The FTSE 250 stock is up 19% over the past year and could be getting set for another big move higher in coming years. Here’s why.
Growing market share
To begin with, financial results continue to impress. One of the concerns that some might have is the thinking that the market is saturated with no scope for growth. It’s true that competition is strong, but this doesn’t mean growth isn’t possible.
In fact, Domino’s has been growing market share over the last three years and now stands at 47%. Even with this, there’s more share to be taken.
The half-year results showed that momentum is building in this way. Like-for-like sales jumped 9.7% versus last year, with group revenue up 19.6%. To me this isn’t a business that’s treading water or stagnating.
Pushing for more stores
Another reason why I think the share price could jump is the growth strategy put in place by the new CEO. Andrew Rennie took on the role late last summer and is already making some bold plans.
For example, the company is expected to open 60 new stores in the current financial year. This is up from 35 the year before and 31 the year before that. Yet in March another update is due, where a “new and increased store target will be given”. This should help to significantly increase revenue for the brand in coming years.
Of course, the risk here is that simply opening more stores doesn’t guarantee more demand. This needs to be watched carefully to avoid an expensive mistake.
Benefits from tech spend
Finally, I think the business will realise large efficiency savings from investment in the digital platform. In the current full-year, the largest capex is £13m into tech. This includes the app and platform whereby users can book and track orders.
The benefit of doing this (and investing to make it smoother), it that it cuts down on manual tasks. I think this could cut long-term costs significantly, boosting profitability.
It’s true that the costs will hurt profits in the short term. Some investors might be put off by seeing this.
Buying before the crowd
When I combine the benefits of growing market share, more store openings and more tech spend, I think Domino’s shares could be primed to rally in the next year and beyond. Of course, investors will be keen to see continued strong financial results. The next large event will be the release of the full-year results in March.
Yet I think it’s wise to get to the party early on this one. The share price could spike quickly if results do beat expectations. That’s why I’m considering investing some money now.
