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Domino's Pizza Stock: 11.10% Yield Potential with Expansion into China

Company name: Domino’s Pizza
Ticker: DPZ.US
Entry Price: $405
Target Price: $450
Projected Yield: 11.10%
Time Line: 3 to 6 months
Risk: Average

About Domino's Pizza

Domino's Pizza is a US based food service company operating the world's largest pizza chain. The company works in 85 countries and includes 15,900 restaurants selling over 3M pizzas per day. Domino's Pizza owns 390 US restaurants, with the rest being franchised.

What's the Idea?

Capitalize on the stock that may rise with favorable business conditions and expansion into China.

Buy Domino’s Pizza Shares >>

Why Trade Domino's Pizza? 

Reason 1: A Successful Business Model Amidst the Lockdown

During the pandemic, catering establishments were significantly affected. Domino's Pizza, however, chose a different business model at the very start: its shops were initially focused on delivery and takeaway service.

The lockdown measures being gradually lifted will be unlikely to make Domino's Pizza less relevant, since the consumers will prefer to order food home anyways. The second wave is also very much possible, and if it happens, it will slow down the transition to a normal lifestyle.

Meanwhile, Domino's Pizza continues actively developing its digital business, thanks to which it can maintain high growth rate of customer orders during the pandemic. Most likely, the company will maintain strong sales figures until late this year, as in the current environment, it is the most competitive player in the catering industry.

Reason 2: Expansion to China

To maintain its growth, Domino's Pizza is going to expand its presence in China. In Q2 2020, a Domino's Pizza's subsidiary acquired a stake in Shanghai based Dash Brands Ltd for $40M. Dash Brands is a private company that will become Domino's premier franchisee in China. It already has a wide network of shops: namely, 300 in 9 cities. At the same time, over the last five years, Dash Brands grew by 30%.

This deal may turn out to have much potential, as Dash Brands focuses on digital business, too, which means more website, WeChat, and mobile app orders. Currently, the company has 85% of all orders coming online.

The catering market in China is very large, and, by expanding there, Domino's will be able to grow steadily. There is, however, a small risk that, due to the tensions between the US and China, this expansion may not be as rapid.

Reason 3: Good Financial Position and Sustainable Growth

A successful business model helped to maintain a stable financial position: in the first six months of 2020, the company's earnings rose by 8.80% compared to the same period last year, while the operating profit margin reached 17.80%. Domino's also posted positive net income with a 13.40% margin, resulting in EPS of $6.05.

Despite the high net debt to EBITDA ratio, which is 5.80x, Domino's has no issues with its debt servicing: in the six months of 2020, the earnings before interest to interest expense on debt ratio amounted to 4.11x, while the debt is $4.10B, and the cash amount is $247M. Meanwhile, the nearest bond maturity is only in 2025.

Despite the high debt burden, the company does not experience any financial issues in the current environment. Domino's regularly pays dividends, the amount of which has almost quadrupled since 2013, and performs buyouts as well. When such positive financial results stay, the company will continue doing the same, which might well boost the stock price.

How to Use the Idea

  1. Buy Domino’s Pizza stock at $405.
  2. Allocate no more than 3% to 4% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
  3. Sell the stock when the price is at $450 per share.

How to Buy Domino’s Pizza Shares? 

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type DPZ.US (Domino’s Pizza ticker in the NYSE) in the search box, and select Dominos Pizza Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that shows up, type DPZ.US (Domino’s Pizza ticker in the NYSE), and select Dominos Pizza Inc. in the results. You will then see Domino’s Pizza stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.

Buy Domino's Pizza Shares: Don't miss the expansion of the world's leader into China!

Buy Domino’s Pizza Shares >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.