Bill Ackman (Trades, Portfolio) has acquired 2 million shares of Domino's Pizza Inc. (DPZ, Financial), citing that he wanted to buy stock in a consumer goods company after selling his stake in Starbucks Corp. (SBUX, Financial).
Domino's value drivers
Domino's Pizza has benefitted from increased digitalization, a surge in deliveries and improved international branding. Furthermore, the company's franchising strategy is contributing to expansion. The restaurant decided to decrease its ownership of branches to be more agile with its equity commitments, subsequently increasing its liquidity and return on investment.
The pizza chain's limited-time offers initiative has increased sales in recent quarters. Dominos' digitalization has allowed it to start remodeling its brick-and-mortar restaurants into pizza-theater prototypes, with lounging areas.
Domino's has experienced same-store sales growth for the 41st consecutive quarter in the United States. The company's high-quality, low and fast delivery model serves it well and has been the driving force behind its recent success.
Increased shareholder value
The company surpassed estimates in its July earnings report with a revenue beat of $60.47 million and an earnings per share beat of 18 cents. Domino's also announced a quarterly dividend of 94 cents and a $1 billion dollar share repurchase plan, which could add to its impressive earnings per share ratio and subsequently provide support to the stock price.
Price target
Financial services company BTIG has indicated the stock could reach the $625 dollar mark. Based on a price multiple valuation, however, the stock could go even higher, reaching the $688 mark, as the market continues to trade at a high price-earnings trajectory.
Final word
Ackman gained exposure to the pizza chain as a portfolio strategy-driven decision. The company alone probably isn't the best investment you can make at this moment in time due to inflationary pressure on the consumer goods sector. However, if you're in search of a consumer goods stock with long-term growth prospects, Domino's could be the play for you.
