Finding and investing in market-beating penny stocks can help boost a portfolio. Due to the small market size of these businesses, an uplift in investor interest can quickly send their share prices rocketing.
Conversely, due to their often limited financial resources and profits (if any at all), they have the potential to crash and burn. Just because a stock’s 10p, it doesn’t mean it can’t fall to 5p in the blink of an eye!
One 10p penny stock in my portfolio is DP Poland (LSE: DPP). It operates Domino’s Pizza stores and restaurants across Poland and Croatia.
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Worth barely a couple of hundred quid, this is currently my joint-smallest holding. I first opened a position back in November, with a view to buying more shares if the firm reported encouraging full-year results.
On 16 January, DP Poland released a trading update for 2024. Here’s what I liked about it.
A year of progress
For 2024, the company expects to report total system sales of £55.4m, which would be a roughly 24% jump over the year before.
In Poland, sales grew 15.9%, with a notable increase of 8.2% in Q4. Like-for-like (LFL) sales rose by an impressive 17.9%, driven by a 20% rise in deliveries (one of Domino’s’ key strengths). This was the third consecutive year of double-digit LFL growth.
Average weekly orders reached a record 827 for the year, a 13.2% increase. Meanwhile, 12 new locations were opened, four underperforming ones closed, and another three are set to open this month. The firm ended the year with 113 stores across Poland.
In Croatia, where it currently has a much smaller presence, total system sales increased by 40.2%.
CEO Nils Gornall commented: “2024 has been another year of outstanding growth for DP Poland, reflecting our continued focus on execution and operational excellence. With an expanded and optimised store network, the initiation of a franchising model, and a debt-free balance sheet, we are confident in our ability to capitalise on the opportunities ahead.”
The key takeaway here (pun intended) is that people in Poland and Croatia, like many other places around the world, are really liking their Domino’s pizzas.
Some concerns
However, I do see a couple of risks here. First, a return of inflation in Poland could heap pressure on consumers, leading to lower-than-anticipated sales. In the second half of 2024, inflation there fell 3.9%, but this is worth monitoring with a potential global trade war looming.
Also, the firm isn’t yet profitable, though it’s getting closer. It achieved consistent adjusted EBITDA profitability in Poland for the first time last year. But it’ll need to generate actual bottom-line profits for the stock to really do well in future.
The good news is that the company’s moving towards a franchising model, with the transfer of five stores to new franchise partners in 2024. This transition’s expected to accelerate this year, which is encouraging as this capital-light model has the potential to significantly boost profit margins.
I’m ordering in more shares
DP Poland’s debt-free and intends to open hundreds more Domino’s stores under a franchising model. It has a modest £99m market-cap, translating into a reasonable price-to-sales multiple of 1.9.
I plan to significantly increase my position in the coming weeks.
