Domino's trades at $472 and has moved in lockstep with the market. Its shares have returned 5.1% over the last six months while the S&P 500 has gained 5.4%.
Is now the time to buy Domino's, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Domino's Not Exciting?
We're sitting this one out for now. Here are three reasons why you should be careful with DPZ and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Domino’s 5.3% annualized revenue growth over the last six years was tepid. This fell short of our benchmark for the restaurant sector. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Domino’s revenue to rise by 5.9%, close to This projection doesn't excite us and suggests its newer menu offerings will not catalyze better top-line performance yet.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Domino’s full-year EPS grew at an unimpressive 8.9% compounded annual growth rate over the last five years, in line with the broader restaurant sector.
Final Judgment
Domino’s business quality ultimately falls short of our standards. That said, the stock currently trades at 26.1× forward P/E (or $472 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
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