SlowAppreciation Posted February 26, 2018 Author Share Posted February 26, 2018 8-12% annual retail sales growth over next 3-5 years. Given the strategy, the growth targets seem reasonable. The question is how much EPS grows when revenue growth is 10%. There should be significant operating leverage -- since most of the variable costs are paid by franchisees. DPZ could also buy up to 5% of the float per year, if the stock price is reasonable. So 15-20% EPS growth seems likely. And DPZ only earns $280M per year. So above average growth for many, many years seems possible. I guess I'm just scared away by the debt. Last I looked they were at something like 8 or 9 debt/fcf Link to comment Share on other sites More sharing options...
KCLarkin Posted February 26, 2018 Share Posted February 26, 2018 I guess I'm just scared away by the debt. Last I looked they were at something like 8 or 9 debt/fcf 6x EBITDA Link to comment Share on other sites More sharing options...
Jurgis Posted June 14, 2018 Share Posted June 14, 2018 https://jalopnik.com/dominos-is-fixing-americas-crappy-roads-for-pizza-safet-1826736405 Link to comment Share on other sites More sharing options...
KCLarkin Posted March 26, 2019 Share Posted March 26, 2019 Sorry - the stock seems overpriced. P/E ratio is a function of growth, ROIC, and cost of capital. I think if you ran the numbers (taking management 5 year projections), you would find that DPZ is actually undervalued. But I need to run to the airport, so I don't have time to do the calculations. By saying it is overpriced, I think you are implicitly saying the growth is unsustainable. You might also be unaware of how high the ROIC is for DPZ. I took a quick run at this. I can make a pretty convincing case that this is worth $200-$230 if you trust the 5 year outlook. Fairly valued with little margin of safety. Looks attractive relative to SPY though. I bought a starter position today. Stock went roughly nowhere over the past year. It is still very expensive relative to most other companies. But a company growing sales 8-12% per year with ~100% ROIC should be expensive. Link to comment Share on other sites More sharing options...
SlowAppreciation Posted March 26, 2019 Author Share Posted March 26, 2019 Sorry - the stock seems overpriced. P/E ratio is a function of growth, ROIC, and cost of capital. I think if you ran the numbers (taking management 5 year projections), you would find that DPZ is actually undervalued. But I need to run to the airport, so I don't have time to do the calculations. By saying it is overpriced, I think you are implicitly saying the growth is unsustainable. You might also be unaware of how high the ROIC is for DPZ. I took a quick run at this. I can make a pretty convincing case that this is worth $200-$230 if you trust the 5 year outlook. Fairly valued with little margin of safety. Looks attractive relative to SPY though. I bought a starter position today. Stock went roughly nowhere over the past year. It is still very expensive relative to most other companies. But a company growing sales 8-12% per year with ~100% ROIC should be expensive. I really like it, but just so much debt... Link to comment Share on other sites More sharing options...
chrispy Posted March 26, 2019 Share Posted March 26, 2019 It is looking interesting now and I may buy a small amount as well. Growth is slowing slightly but the main concern (I believe) is that much of the debt was used to fuel growth via buybacks Link to comment Share on other sites More sharing options...
KCLarkin Posted March 26, 2019 Share Posted March 26, 2019 It is looking interesting now and I may buy a small amount as well. Growth is slowing slightly but the main concern (I believe) is that much of the debt was used to fuel growth via buybacks The leveraged recapitalizations are an interesting wrinkle. The market cap at the start of 2014 was about $4B. Over the last five years, they have returned $3B to shareholders through dividends and buybacks. However, the organic growth is so good (and share price so high) that the recaps have only given a modest boost to EPS growth. Though I'd prefer they were less aggressive, I like that they manage their capital structure. Contrast DPZ, which has added perhaps 3-5% per year by doing leveraged recaps, versus Google which has perhaps subtracted 3-5% per year by hoarding cash. Over time, that is a huge gap. Of course, leveraged recaps will be a disaster if the fundamentals start to suffer. WTW before the Oprah investment is an interesting case study. But even with that disaster: https://www.forbes.com/sites/nathanvardi/2018/12/20/deal-master-debbane-meet-the-secretive-lebanese-immigrant-behind-oprahs-weight-watchers-windfall/#222fe6d15bb8 Anyway, as long as they can grow 8-12% per year with very little capital, I am not worried about the debt. Link to comment Share on other sites More sharing options...
Castanza Posted March 26, 2019 Share Posted March 26, 2019 Papa Johns has just restructured. I believe Shaq was added to the board and they are making extreme steps to mitigate the negative press it received when the former CEO went on a racist rage. They seem to be reinventing themselves. Just saw this on the weekend and have been wanting to dig into it. Their stock has been beaten down pretty badly and there could be some value here. Link to comment Share on other sites More sharing options...
tol1 Posted March 27, 2019 Share Posted March 27, 2019 Has anyone looked at how the unit CoC return has evolved over time? Link to comment Share on other sites More sharing options...
Spekulatius Posted March 27, 2019 Share Posted March 27, 2019 Papa Johns has just restructured. I believe Shaq was added to the board and they are making extreme steps to mitigate the negative press it received when the former CEO went on a racist rage. They seem to be reinventing themselves. Just saw this on the weekend and have been wanting to dig into it. Their stock has been beaten down pretty badly and there could be some value here. The stock looks very pricey to me. They need a hell of an earnings recovery to justify the current valuation. Link to comment Share on other sites More sharing options...
Castanza Posted March 27, 2019 Share Posted March 27, 2019 Papa Johns has just restructured. I believe Shaq was added to the board and they are making extreme steps to mitigate the negative press it received when the former CEO went on a racist rage. They seem to be reinventing themselves. Just saw this on the weekend and have been wanting to dig into it. Their stock has been beaten down pretty badly and there could be some value here. The stock looks very pricey to me. They need a hell of an earnings recovery to justify the current valuation. "Could have value." In the pizza world it seems like there would be a lot of fixed costs for companies across the board. Starboard just put 200M into Papa back in Feb. They were a big catalysts for Olive Garden (Darden) who is doing quite well now. That being said, I typically don't follow the restaurant sector. There is a lot of things I don't understand about it, its very trendy etc. Redemption could take a few years for sure and it will probably keep going down from here. But at some point this could be a really interesting value play. It's hard to carry a moat in the pizza industry. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 31, 2019 Share Posted March 31, 2019 https://aaronallen.com/wp-content/uploads/2018/08/ROA-Median.png Link to comment Share on other sites More sharing options...
tol1 Posted March 31, 2019 Share Posted March 31, 2019 https://aaronallen.com/wp-content/uploads/2018/08/ROA-Median.png If this was available for restaurant level CoC over time would tell us a lot about how saturated the market is. Link to comment Share on other sites More sharing options...
KCLarkin Posted March 31, 2019 Share Posted March 31, 2019 If this was available for restaurant level CoC over time would tell us a lot about how saturated the market is. The domestic takeout/delivery pizza market is obviously saturated. However, DPZ is taking market share. They have 31% market share up from 23% 5 years ago. Link to comment Share on other sites More sharing options...
tol1 Posted March 31, 2019 Share Posted March 31, 2019 If this was available for restaurant level CoC over time would tell us a lot about how saturated the market is. The domestic takeout/delivery pizza market is obviously saturated. However, DPZ is taking market share. They have 31% market share up from 23% 5 years ago. Meant the entire QSR/fast casual space across pizza/burger etc. The ROA comparison is pointless anyway as some are almost 100% franchisors (DPZ), whereas others are not (CMG). Link to comment Share on other sites More sharing options...
KCLarkin Posted March 19, 2020 Share Posted March 19, 2020 Anyone have thoughts on when to sell a winner to redeploy into better bargains? DPZ was meant to be a forever stock for me but at some point I want to start buying bargains. Link to comment Share on other sites More sharing options...
Castanza Posted March 19, 2020 Share Posted March 19, 2020 Anyone have thoughts on when to sell a winner to redeploy into better bargains? DPZ was meant to be a forever stock for me but at some point I want to start buying bargains. When the guy sitting on your shoulder begins to resemble J.G. Wentworth Link to comment Share on other sites More sharing options...
KCLarkin Posted March 19, 2020 Share Posted March 19, 2020 Don't get the reference, so I assume this means hodl. Link to comment Share on other sites More sharing options...
chrispy Posted March 19, 2020 Share Posted March 19, 2020 This is almost a hedge and could continue to perform well even if the market performs poorly. Maybe in a few weeks the delta is even greater Link to comment Share on other sites More sharing options...
Xaston Posted March 19, 2020 Share Posted March 19, 2020 Anyone have thoughts on when to sell a winner to redeploy into better bargains? DPZ was meant to be a forever stock for me but at some point I want to start buying bargains. You don't have to sell an entire position at once. Link to comment Share on other sites More sharing options...
Jurgis Posted March 19, 2020 Share Posted March 19, 2020 Anyone have thoughts on when to sell a winner to redeploy into better bargains? DPZ was meant to be a forever stock for me but at some point I want to start buying bargains. IMO relative valuations (selling something to buy something) is very hard. Actually I find relative valuations (whether to buy X, Y or Z) to be very hard overall. :'( Link to comment Share on other sites More sharing options...
KCLarkin Posted March 21, 2020 Share Posted March 21, 2020 Anyone have thoughts on when to sell a winner to redeploy into better bargains? DPZ was meant to be a forever stock for me but at some point I want to start buying bargains. Thanks all. I've decided to hold onto this for now. A bit uncomfortable with the valuation and debt, but I think this crisis will accelerate market share gains. Link to comment Share on other sites More sharing options...
hasilp89 Posted February 26, 2021 Share Posted February 26, 2021 Anyone still holding or following? Sold off quite a bit after yesterday's earnings and considering at what levels to add. Sold off due to slight miss and outlook, but was wondering if it got caught up / will get caught up in the whole treasury yields rising trade. LT prospects of the business are still good IMO although US growth may certainly slow down and 2020 will have some tough comps, China still appears to be a large opportunity. I have it trading around a ~4% FCF Yield today which is obviously pretty fully priced. In terms of what happens in a rising rate environment I did a rough look back at what the spread over the 10 Year has been over the years (believe this is a relevant way to look at the relative value but correct me if not). '08-10 the spread was 8%+, '11-12 was in the 3-4% range, then in '13 it drops into the 1% range and dips below 1% through 2019. I guess what I'm getting at is it has traded at only a slight premium over treasuries for the last 7 years. For it to trade at the 08-10 levels it would have to drop by 50%. Is that a possibility? Link to comment Share on other sites More sharing options...
peridotcapital Posted February 26, 2021 Share Posted February 26, 2021 I initiated a position yesterday. While not cheap on an absolute basis, compared with its historical average it is on the low end and that was with 10 year yields in the 2-3 range pre-pandemic. With an ever-growing dividend, buyback program, and international growth opportunities, looks like classic GARP to me and over the last 5 years every dip has been a buying opportunity. Growth may slow with reopening, but a lot of mom and pops aren't making it, so perhaps even that impact is muted a bit. Link to comment Share on other sites More sharing options...
KCLarkin Posted February 26, 2021 Share Posted February 26, 2021 I have it trading around a ~4% FCF Yield today which is obviously pretty fully priced. DPZ requires no capital to grow, so they can return >100% of FCF. They will probably return >5% per year in Dividends and Buybacks. You get the growth for free. They are forecasting 6-8% unit growth per year. So it is pretty easy to get 10% NI growth. 10% NI Growth + 5% shareholder yield = 15% per annum. That meets my hurdle rate, especially considering this is one of the best businesses in the world. And most other good businesses are very expensive right now. Regarding historical valuations, of course the stock can trade at any price. But the valuation was insanely cheap before 2013, which helped DPZ become one of the top stocks of the last decade. And since DPZ is a cannibal, the lower the share price the better. With DPZ' ROIC, it is worth a large premium even if it had more modest growth. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/all-pes-are-not-created-equal Disclosure: Already a large position for me, but looking to add at current prices. Would probably double down if it gets near $320. Link to comment Share on other sites More sharing options...
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