The share price renaissance over at Domino’s Pizza Group (LSE: DOM) since the start of the year well and truly hit the skids this week.
The fast food giant saw its share price plummet in the wake of fourth-quarter trading details, a drop that has raised the question of whether 2019 will prove another disastrous period for its stock value (in 2018 Domino’s saw its market price collapse by almost 33%).
Not for me, though. In my opinion this is good opportunity for dip buyers to swoop in and grab a slice of the action.
Let’s look at that difficult trading update, then. In it, Domino’s hacked back its full-year forecasts for 2018 and said that underlying pre-tax profits are likely to register at the lower end of expectations, at between £93.9m and £98.2m. Profit on a comparable basis tallied at £96.2m in 2017.
The pizza powerhouse downscaled its guidance on the back of a challenging period for its international businesses because of “growing pains this year, particularly in Norway, where we have faced business integration challenge.” Sales in its overseas territories fell 2% in the 13 weeks to December 31 to £26.6m, as a consequence of those troubles in converting the Dolly Dimple’s stores, which it acquired in 2017.
The pace of the Domino’s European rollout strategy meant that some hiccups were always a danger. I would suggest, though, that the sell-off which greeted Tuesday’s trading update has been far too severe.
… but Britain booms
In fact, I prefer to concentrate upon the terrific trading performance of its core UK and Irish units. Signs of increasing sales momentum in these territories provide plenty of comfort considering the growing fears over competition in the takeaway market. In the fourth quarter, aggregated sales in these two regions boomed 6.2% year-on-year to £312.9m, with like-for-like sales in the UK rising 4.5%. This compares to the 2.2% like-for-like advance that Domino’s printed in the prior quarter.
As the business commented, the market opportunities remain abundant through the next several years. It cited estimates that the British delivered food market will expand at a compound annual growth rate of 8% and be worth some £9.3bn by 2022. And by expanding its domestic store network — it plans to have 1,600 stores up and running versus 1,261 as of the close of 2018 — Domino’s is giving itself an excellent opportunity to ride this pony.
Some astonishing numbers in this week’s update underlined the intensity of our love affair with the doughey delight that has long made Domino’s a great growth stock. The FTSE 250 company said that it sold a staggering 535,000 pizzas in one day on Friday, December 21, smashing all previous records and representing one dish sold every 12 seconds.
While City forecasts of double-digit earnings growth in 2019 are likely to receive downgrades following the latest news at Domino’s, I believe that a forward P/E ratio of 14.1 times looks mighty tempting, considering its bright profits outlook.
What’s more, above-average dividend yields of 4.1% and 4.5% for 2019 and 2020, respectively, give investors an extra tasty treat. Domino’s has been lifting dividends at a terrific rate in recent years and I believe that still-soaring demand for its pizzas should keep this ultra-progressive policy in business for many years to come.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.