Domino’s Pizza (NASDAQ:DPZ) is the world’s largest pizza chain. Recent developments have left investors questioning if buying this stock is worth it, as its Q4 2024 earnings report came in mixed. The stock is now down 8% in the past five days. Should you buy the dip? Here’s what you need to know:
Domino’s Q4 2024 earnings report came in mixed and fell short of Wall Street’s expectations. Revenue grew to $1.44 billion but missed analysts’ consensus estimate of $1.48 billion. Earnings per share (EPS) of $4.89 also narrowly missed the expected $4.92 and U.S. same-store sales growth was just 0.4%. This is much lower than the 2.8% figure it posted in the year-ago quarter.
That said, there were a few bright spots in the report. International same-store sales grew by 2.7% vs. 0.1% in the prior year, and the company achieved a net increase of 364 stores globally during the quarter. The board approved a 15% hike in its quarterly dividend to $1.74 per share.
I worry that the company may be overinvesting in new stores if demand isn’t cooperating. Same-store sales growth already indicates some market saturation or competition.
Price targets are likely to be re-shuffled in the coming days, but analysts remain optimistic for now. The consensus price target is at $502.33 and implies 15% upside potential. The highest price target is $612, and the lowest is $402.
TD Securities reiterated its "Buy" rating with a price target of $490. Similarly, RBC Capital set a price target of $500 last week.
The most promising thing that has happened so far is Warren Buffett’s investment. In Q3 2024, Berkshire Hathaway purchased 1.3 million shares of DPZ (~3.7% stake) worth $549 million. This marked Berkshire’s first major restaurant investment since acquiring Dairy Queen in 1997. he then expanded his holdings by 86.5% by buying 1.1 million more shares. His average price for both transactions was $434.56 and $437.07, respectively.
Buffett probably likes the cash flow and the aggressive share buybacks here.
The stock hasn’t declined that much after the weak earnings report. The dividend hike also offset the sourness. However, it’s a good idea to keep in mind that the stock is still expensive. It trades at 26 times forward earnings and just over 3 times forward sales. Analysts expect about 5-6% growth in both sales and EPS for all of 2025.
Is a restaurant business with such growth numbers paying that much for? It might be if you’re looking into something indispensable like McDonalds (NYSE:MCD). MCD is a good defensive stock that investors will likely be comfortable paying a high premium for since it is unlikely to be knocked down by turmoil. MCD gained during the 2008 recession, while Domino’s lost over 80% of its value.
As such, it might be a better idea to wait for DPZ to come down to a more attractive valuation. A “Hold” rating fits DPZ the best right now.
