Don’t Let The Domino’s FOMO Fool You

The virus has pushed customers to download the Domino’s app and increase its business in the short-term, and it’s likely to keep some of those customers, adding them to its already steadily growing business.

Domino’s Pizza stock has shot up 30% in 2020, as pizza is the obvious frontrunner delivery choice of the pandy. Yet, Evercore ISI asserts that the company can keep growing even when the virus is no longer a restraint. Analyst David Palmer slapped Domino’s [$DPZ] with an Outperform rating and a $460 price target, noting that “the market is underestimating Domino’s market share gains and growth in 2022 and beyond.”

Domino’s has been a major beneficiary of the pandy, given its focus in suburban locations, digital capabilities, and its established delivery network—and people’s partiality to just order a pizza for yet another night in. Needless to say, skeptics ponder what will happen in the second half of 2021, when a mass vaccination campaign will give us hunkered down consumers more dine-in options.

Since 2016, there has been a downward trend in new or renewed leased space by top fast food chains such as Starbucks, Wendy’s, Taco Bell and others. The rise of online ordering and pickup options have reduced the need for eat-in space, a trend that accelerated during the pandemic.

Palmer asserts that this “natural pushback” about the risk of negative same-store sales ahead is understandable but overblown. He believes that there’s significant upside to current consensus estimates, and a reasonable valuation appears to already factor in a post-virus discount. Uber v.s. Lyft During Covid

He forecasts 15% U.S. same-store sales growth in Q4. Looking farther ahead, he mentioned that membership in the company’s loyalty program hinted at low-single-digit sales growth in 2021, and that Domino’s will post at least 4% comparable sales growth in 2022.

Brothers Tom and James Monaghan founded Domino’s Pizza in 1960 when they bought a small pizzeria in Ypsilanti, Michigan. The brothers purchased the store for only $900 and decided to keep the original name, DomiNick’s. They were given a 15-minute lesson on making pizza from the original owner, Dominick, before opening the shop.

Palmer said Domino’s is reaping rewards from a cycle of increasing domination in the suburbs and decreasing competition. The company’s average profit per restaurant is about 50% higher than the average restaurant in markets dominated by third-party delivery players. What’s more, Domino’s is around 20% cheaper in terms of feeding a family of four than fast-food delivery, and some 60% cheaper than getting a meal delivered from a dining chain.

He notes in a fanciful scenario, where Domino’s gains even more market share than expected, the stock could soon climb to $520. Domino’s stock was up 0.8%, at $385.62, in recent trading. Who Really Owns DoorDash?

During the first year, both brothers worked tirelessly making and delivering pizzas with the help of a 1959 VW Beetle, the company’s original delivery vehicle. Within a year, James, who had a full-time job as a mail carrier, sold his share of the pizzeria in exchange for the VW Beetle.

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