Hot stock: Is it time to nab a slice of Domino's?
It's a tough time to be a stock-picker right now. Hell, it's a tough time to just be an investor, with shares seemingly on the nose in almost every sector.
Interest rates are rising, and have a way to go. That generally hurts asset prices, including shares. Investors are also increasingly worried about an economic downturn that might, or not, include a recession.
It's a far cry from late 2020 when everyone was bullish and shares were 'going to the moon'. It was hard to find a bearish voice, and true believers were everywhere.
That was 50%, 75% even 90% ago for some share prices. The time since has been tough.
And, it's worth adding, the share market (and individual investors!) are moody beasts. When share prices are up, we're uber-optimists and bulletproof. When shares are down... 'conviction' is almost exclusively the province of the law courts.
Which is a shame. Because most of us would give our eye teeth to go back to historic downturns and invest more. Back to the COVID crash. Back to the GFC. Back to the dot.com crash. These were, with the benefit of hindsight, wonderful times to invest.
But at the time? Scary as hell.
Which is the way of these things.
Now, I'm not going to tell you we've passed the bottom. Or we're at the bottom now. Or when - and how much lower - it might be in the future.
I'm just going to suggest that the opportunity to buy beaten-down shares, when the market is in a funk, is usually a very good one to take.
And that, as long as the business itself is sound, and its future is bright, the funkier the share price the better.
Oh, you'll need to be brave. And have a cast-iron stomach. And you should be diversified, because some 'bounceback' stocks, well, won't bounce back.
But one beaten-down company I think fits the bill, in that context, is pizza purveyor, Domino's (ASX: DMP). (And for the record, I own shares).
The business had a huge boost during COVID lockdowns, when restaurants were no-go, but affordable, safe and reliable - and delivered to home! - was in. Domino's made hay, here and overseas.
It has operations (franchised and company-owned) in Australia, New Zealand, Japan, parts of Europe and now in other parts of Asia as well. And it continues to grow like the clappers.
Ah, you say, but that was then. That was during (we should almost whisper it these days) the worst of the pandemic. And that's true.
But that growth, unusually large though it was, came on the back of years and years of strong revenue and profit growth.
And yes, that 'COVID growth' is - hopefully for the rest of us! - probably a one-off.
But I think you and I should 'look through' the COVID times, and see a business that has continually refined its business model, and continues to prosecute a very effective strategy to grow both sales and profit.
See, making pizza isn't hard. But - as many failed or hanging-on-by-a-thread pizza chains will tell you, doing it well, and profitably... that's not quite as easy.
Especially when you have Domino's competing against you. They've nailed the business model. Hard to beat on price. The masters of the upsell. Using scale benefits to lower delivery times. Using technology to lower costs and drive sales. No business is perfect, but Domino's does it better than almost anyone.
But what about a downturn? Won't that hurt sales? Maybe. But probably not by a lot, or for long - a cheap pizza is an affordable luxury. And isn't inflation pushing up costs and prices? Yes, but that's true for everyone, and while it won't help, I don't think it's a significant long-term problem.
Instead, I'm looking out two, three, five and 10 years. I think Domino's will be meaningfully bigger (by store count, sales, and profits) than it is now. And if we get the chance to buy shares while the market is focussing instead on the next 3-12 months, well, that's some pessimism I'm only too pleased to take advantage of.
Disclaimer: The author owns shares of Domino's.
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