Could the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price be a buy for a growth portfolio right now?
How is the Domino’s share price going?
The Domino’s share price has dropped by over 20% since 18 February 2021, which was the middle of reporting season and just after the company had reported.
It’s higher than it was six months ago, but a lot of the progress has been reversed.
The company revealed that in the FY21 half-year result its network sales went up 16.5% to $1.84 billion, with online sales increasing 25.4% to $1.42 billion. Domino’s EBITDA grew 23.8% to $218.7 million and EBIT increased 32.3% to $153 million. International EBIT rose 55.7% to $99.9 million, representing 65.3% of total EBIT.
Looking at the individual divisions, in Japan management and franchisees have accelerated new store openings (an increase of 68) and sales grew 42.6% – EBIT grew 112.3% to ¥4.2 billion. In Europe, despite COVID-19 conditions, regional sales grew 13.8% to €435.7 million and EBIT went up 18.2% to €27.2 million. ANZ saw EBIT grew 9.8% to $63.7 million.
Underlying net profit after tax (NPAT) – after minority interest – grew 32.8% to $96.2 million, whilst free cash flow went up 50.3% to $124.4 million.
The Domino’s CEO said that the company intends to outperform the strong result in the second half of FY21.
Has COVID-19 helped or hindered Domino’s?
Domino’s said there was twin challenges of delivering exceptional service levels and serving record customer numbers, particularly in Japan and Germany.
However, Mr Don Meij, the Domino’s CEO, said: “Our view is that COVID-19 has brought forward long term demand for delivered food, ordered online, in all markets. At the same time, carry-out orders remain challenged in most markets, as specific customer segments (including CBD office lunches) have changed their ordering behaviour.
“This has affected individual countries differently – some markets the growth in delivery sales has more than offset the changes in carry-out customers, in others same store sales growth remains lower than expectations in the short term.”
Outlook for Domino’s
In the FY21 trading update, at the time of the result, the company announced that same store sales had risen 10.1% with 11 new stores.
Over the next three to five years, its annual same store sales growth target is 3% to 6%, with annual organic new store additions of 7% to 9%. Somewhere between FY25 to FY33, Domino’s thinks that it can reach 5,550 stores – this would be a doubling of numbers compared to today.
Looking at the earnings projections for Domino’s, CommSec’s forecast means the share price is valued at 30 times the estimated earnings for the 2023 financial year.
Is Domino’s just a pizza business, and not worthy of the current profit multiple? Or is it partly a good tech (and food) business, with global growth potential? If I were a long term shareholder, I’d be happy to keep holding for the coming years. However, I don’t think today’s Domino’s share price represents great value. There are other ASX growth shares that don’t seem so expensive to me.
