Good point @UlladullaDave

The vanity and empire building of board and management teams are responsible for so much value destruction.

Success in a given geography or niche rarely guarantees success in others unless there is a genuine competitive edge to be exploited. Once, just once, i'd love to see a company say, "well, looks like we've maxed out our growth potential here, so the plan now is to return as much cash to shareholders as possible" (all while trying to prudently sustain existing operations). Cigarette companies cop a lot of grief (and not unfairly) but boy did they provide a master class in capital management and shareholder value creation.

That being said, you need bold and ambitious management if you want to score the really big returns. And to be fair to Dominos, they've had some success in other markets, and have pulled back in areas where things haven't worked out. Don Meij has done a pretty darn good job over the years.

Perhaps it's better to level most of the blame on an overly expectant market which was happy to bid the price up to silly levels.

from purely the Australian market point of view…dominos is the Amazon of pizza.

theres just isn’t another company.

it's winner takes all.

those that have tried…have failed.

If a black hole came and swallowed dominos I think it would take ten years for someone to replace them in this country…at least.

from an insiders point of view, it’s a horrible industry and they’ve spent decades perfecting it system wise.

if they could only run their company on a holistic level like they do on their operational systems level.

they’ve got so much of a head start in Australia I doubt they’ll ever get caught.

if the valuation gets right, I’ll buy and hold….and I’m sure my kids will one day be holding my shares.

Yep, not disagreeing with you about Don's work with DMP in Australia. That was an incredible roll-out. Just, like you say, it would be nice if they knew when to stop and starting paying dividends. I guess it's hard though for aggressive, ambitious managers who have that much wind in their sales to change course like that. Then layer on an expectant market that wants to see growth and certainly wouldn't have been asking for higher dividends at the expense of growth.

100% agree.

Compared the nutrition value between Dominos and Pizza hut. Dominos pizza seems more healthy than Pizza Hut.

Pizza hut also has less "coverage" than Dominos.

I also hate that Pizza hut keeps emailing me since I placed an order last year.

Would like to add Dominos never emailed ads.

They're just some observations but doesn't mean it is a buy

They both have pretty rubbish pizzas to be fair.

Think DMP is simply a case of a rollout story coming to an end. Can still be okay such as JBH and CKF but the big gains are gone i think. LOV is just starting that journey. Think you're right Don might be the wrong CEO for the job now.

I really do dislike DMP pizzas and their constant bombardment of 'deals' had to unsubscribe everywhere.

They are cheap but think I prefer Crust amongst the more commercial chains despite being a bit pricier.

I think Dominos is an example where historical PE valuation can be a trap. I’ve had Dominos on my watchlist for over 3 years, looking for an opportunity to buy. However, I haven’t, even though the share price has fallen 75% from its peak of $165 in September 2021. What not?

I’ve been waiting for Domino’s ROE to stabilise. The 10 year ROE history for Dominos is interesting.

For 4 years ROE increased almost exponentially to over 50%. In 2023 ROE was 25% the lowest it’s been in 7 years. However the average annual PE ratio used for valuation was 40x.

The question on my mind is, can Dominos return to strong earnings growth or has it lost opportunities to expand making it a mature business which is struggling to contain costs. In the later case we may not see ROE go much over 30% into the future, and more earnings SHOULD be paid out as dividends. Of course the PE will take a reset as the business matures and earnings flatten. If this is the case the PE could be still too high.

The other scenario is that growth could return and the share price will look cheap.

For now I’m going to sit on the side lines and see what happens. At this point I’m more inclined to think the business is maturing at a global scale, ROE will stabilise at around 30%, and the PE will adjust downwards slightly.

@Rick what you point out is correct. looking into more detail we can see the C19 pick up as volumes went crazy and the inevitable decline. the big issue for me with this one is the global rollout--is it a diworsification. the company pointed out issues in Japan and France; given the results, they must be big issues. One first-level explanation is that these two food cultures are not open to pizza saturation like other countries. That would mean poor returns ongoing, which will lead to a de-rating of the multiple. Management, of course, is not buying this at all and sees huge potential but is encountering execution issues in each market. other markets look ok. the post C19 volatility is making analysis a bit murky, as it does with many other consumer companies. The company has changed its geographical mix a bit over the last several years whether that is a good decision is still up in the air. ive a small punt on this but I must admit low conviction we need to see some sustainable progress or stabilisation in these difficult markets. good luck all

note i was on Thursday's call went for 75 minutes, sentiment very poor

Spot on @Rick and @Solvetheriddle

This has been a great growth company and management did do well for a long time. But growth has stalled for over 5 years now if you exclude the unsustainable covid bump (as you should if you're thinking like an investor or customer of this business).

EPS are basically the same as they were back in 2017, so you are still paying a multiple today that is more than double the market, for a business that isn't growing. And the returns for the money being invested in the business have also been on a downtrend since 2018.

It's another example of why a margin of safety when you buy shares in a business is so important and why you need to be very careful paying a multiple that is double the market or more. In late 2021 some investors were paying $160 a share for Dominos (which was a PE of about 70) and for the few that have held on they have now lost 75% of their money...

Price would need to halve again from here, or they get back to EPS growth of 10% + a year again, to get me interested.

For 4 years ROE increased almost exponentially to over 50%.

That's what happens when you use debt to run a buyback.

Have a look at the 2018 cash flow statement.

And the effect of that was to reduce equity, while increasing leverage...

One of the issues I have with RoE is that it can be gamed like this – ROIC is more robust in this regard and also can remove the issues around indefinite life intangibles. ROE in this instance is picking up a change in how the business is financed not necessarily an improvement in the underlying operating business.

There is definitely a read through with these sort of things, imo. Raising $250m in new debt to run a buyback is kind of symptomatic of late stage growth – big acquisitions are also part of it. Covid sort of muddied the waters I guess, one wonders what the SP would have looked like without it.

That’s a good point @UlladullaDave! I forgot to mention debt before. If you are using ROE you need to consider the debt that is artificially inflating ROE. Sometimes this is a good thing when interest rates are very low and ROIC is very high. Leveraging can improve shareholder returns through earnings expansion, and share buy backs. This has worked in Dominos favour.

The problem Dominos faces now is the very high debt (net debt to equity ratio is 158%), higher interest rates and declining ROE and ROIC.

Source: Simply Wall Street