Domino's Pizza(NASDAQ: DPZ) stock is one of the more recent additions to the equity portfolio of star investor Warren Buffett's Berkshire Hathaway. In recent days, it's also become one of the more buzzworthy titles.
This isn't all that surprising, considering the storied pizza to-go specialist crushed profitability estimates in its recently reported first quarter. It also earned a clutch of analyst price target raises along the way.
Let's take a look at that quarter, and see whether the attention the stock is getting makes it worthy of a buy.
Boosted by the accounting
The main takeaway from the takeout artist is that convincing bottom-line beat, so let's unpack it. First, a brief overview -- for the quarter, Domino's total sales ticked up by nearly 3% year over year to just over $1.11 billion. That was just under the average analyst projection of $1.13 billion.
Image source: Getty Images.
The dynamic was very different where profitability is concerned, though, and this is where it gets interesting. Net income according to generally accepted accounting principles (GAAP) standards surged nearly 19% higher to hit almost $150 million, or $4.33 per share. That latter number was far above the consensus pundit expectation of $4.00.
Why the stark difference in top- and bottom-line growth rates? In both the earnings release and the conference call discussing the results, the company and its executives intimated that market share gains were a difference maker.
I'm not convinced they had such an impact, as Domino's wrote in its 2024 annual report that it gained under 1 percentage point of share in the U.S. that year. According to the company's data, its percentage of total dollar spend on quick service restaurants (QSRs) doing pizza was roughly 40%, and that for delivery stood at around 60%.
It seems that another factor was mainly at work. A glance at that ever-nondescript "other income (expenses)" line on the income statement shows quite a change; in the first quarter of this year, that figure was a positive $24 million and change, where in the same period of 2024, it was in the red at nearly $19 million.
A bit of digging reveals this is an adjustment in the value of its strategic investment in DPC Dash, a company traded on the Hong Kong exchange. It is the exclusive Domino's "master franchisee" in mainland China, and the Chinese enclaves of Hong Kong and Macao (nice work if you can get it, eh?).
Price targets targeted for boosts
At the end of the day, as many great and wise investors have said and thought, profit is profit, no matter the source. Perhaps with that old saw in mind, a clutch of professional Domino's-watchers wasted little time either reiterating their bullish takes on the stock, or raising their price targets to reflect the quarter's performance.
Among the more assertive raisers was RBC Capital analyst Logan Reich, who now believes Domino's is worth $550 per share, up from his previous assessment of $500. He also rates the stock an outperform (buy, in other words).
According to reports, Reich wrote that despite the mixed quarter, Domino's outpaced expectations for international same-store sales, while in our country, it posted that market share gain despite relative weakness in consumer spending. Moreover, the company's recently announced partnership with ubiquitous delivery company DoorDash should help boost sales.
Tastier stocks elsewhere
So this leads us to the inevitable $16 billion question (yes, Domino's market cap really is that high): Should you bite into this stock and purchase it for your portfolio? Back in November 2024, not long after it was revealed Buffett had done so for Berkshire Hathaway, I wrote an article expressing my view that Domino's wasn't a particularly appetizing investment.
Since then, the stock has risen and beaten the S&P 500 (with a 4%-plus gain against the index's over-6% decline). However, other comestibles stocks such as McDonald's have done better (as has DoorDash, while we're at it).
While I have to give credit where credit is due for Domino's recent gains and that stock price improvement -- take a bow, management -- I still don't consider it either an outstanding growth or income stock (it pays a dividend, but this has a so-so yield of 1.5%).
I doubt pizza is going to get more popular than it is already, particularly in this country, so I'm not sensing there will be a great advancement in its business. For investors interested in this sector, I'd recommend choosing stocks with stronger potential.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Domino's Pizza, and DoorDash. The Motley Fool has a disclosure policy.
