Every quarter, investors around the world rush to read Warren Buffett’s latest 13F filing for his investment firm Berkshire Hathaway. This document outlines what the billionaire investor and his team have been buying and selling over the period. And with the Berkshire portfolio having doubled the market average performance for almost 60 years, it’s not surprising that everyone wants to know what he’s up to.
His latest filing revealed that he’s just bought shares in Domino’s Pizza (NYSE:DPZ). So what prompted him to open this new position? And should investors consider the UK-variant of Domino’s Pizza (LSE:DOM) for their portfolios? Let’s take a closer look.
The largest pizza chain in America
According to Bloomberg Second Measure, Domino’s Pizza currently controls an estimated 42% of the US market share for pizza restaurants. That’s significantly larger than Pizza Hut’s 23% and Papa John’s 22%. And its dominant brand’s clearly translated in the firm’s financials.
Looking at the latest quarterly results, the group’s on track to achieve four consecutive quarters of profitable order-count growth. As a result, same-store sales over the first nine months of 2024 have jumped by 4.5%, delivering $13.2bn of revenue and $605.3m of operating profits.
The growth may not be spectacular. But it’s proven to be fairly consistent. And when paired with a cash-rich balance sheet and expanding gross margins, it’s not hard to understand why Buffett and his team have been drawn in.
However, looking at the valuation, it’s clear Buffett was willing to pay a premium. On a price-to-earnings basis, the stock trades close to 28.7. And even on a forward basis, it’s not that much cheaper. In the meantime, the UK Domino’s Pizza shares are only priced at around 17.7 times earnings. So is this the better buy?
Pizza sales in the UK
It’s important to note that the UK version is a separate business and not a secondary listing. It controls the master franchise agreement to own, operate and franchise Domino’s locations across the UK and Ireland. And, so far, its success story seems pretty similar to that of the US.
It currently controls an estimated 7.2% of the entire British takeaway market and has been steadily increasing its dominance over the last few decades. Subsequently, since 2004, shareholders have reaped an enormous near-2,700% return, including dividends.
Given that the demand for pizza in the UK’s on the rise, the long-term potential for this enterprise seems rock solid. Of course, it’s also facing stiffer competition, with the likes of Greggs entering the pizza space. And while shares are priced cheaper versus their American counterpart, the UK and Irish markets are also considerably smaller.
The disposable income of Americans has generally been much higher than that of Britons. So Buffett’s team seems to have sided with the US business despite the higher price tag. Personally, I have to agree with this conclusion.
I think the company is potentially worth a closer look for those seeking exposure to the restaurant industry. However, for my portfolio, restaurants aren’t a great fit. So I’m not looking to invest in either of these businesses right now.
