Down 18%, is Domino’s Pizza now a FTSE 250 cut price?

The previous 12 months has taken a slice out of the share worth of Domino’s Pizza Group (LSE: DOM). The FTSE 250 share is now 18% beneath the place it stood 12 months in the past.

That signifies that it trades on a price-to-earnings (P/E) ratio of 11. That’s lower than half the P/E ratio of New York-listed Domino’s Pizza Inc.

The US enterprise mannequin is totally different, because it makes cash franchising the model, whereas Domino’s Pizza is just an area franchisee. However the UK enterprise is performing significantly better than the constantly loss-making japanese European franchisee, London-listed penny share DP Poland.

It additionally gives a 4.2% yield, above the three.6% common for FTSE 250 shares.

Might this be a cut price share so as to add to my portfolio?

Heaps to love about Domino’s

Whereas the share worth motion suggests the enterprise could also be going through harder occasions than earlier than, I’m much less positive about that.

Within the first quarter, complete orders had been greater 12 months on 12 months and like-for-like gross sales additionally grew. The expansion was modest, however I nonetheless see it as constructive.

Final 12 months’s figures additionally didn’t include apparent trigger for alarm, in my opinion. Sure, revenues slipped barely. However underlying revenue earlier than tax grew 8.4%.

In contrast, statutory revenue after tax was down by over a fifth. Nonetheless, the prior 12 months’s (2023) determine had been enlarged by the sale of a German affiliate. Final 12 months’s quantity was 11% forward of the 2022 equal. I see that as stable progress.

Certainly, one thing I like about Domino’s is its sturdy profitability. Final 12 months’s statutory revenue after tax of £90m on income of £665m equates to a internet revenue margin of 13.6%.

Some watchouts for buyers

Nonetheless, there are some issues I’ve concerning the funding case.

Web debt grew final 12 months to £266m. That could be a little over 1 / 4 of the present market capitalisation. I see that as manageable however would like a decrease debt degree, as curiosity prices eat into earnings.

Greater workers prices are additionally a threat to earnings throughout the meals trade this 12 months and Domino’s is not any exception.

Attainable cut price

Nonetheless, even weighing a few of these threat elements, the present share worth of this well-known FTSE 250 model nonetheless appears low-cost to me.

Buyer demand is resilient and the model is a robust one. The enterprise mannequin is confirmed and generates juicy revenue margins. The corporate is scaling up, which is including extra economies by spreading prices wider.

I reckon the Domino’s enterprise is a stable one that also has sizeable progress potential. It’s throwing off money and appears set to maintain doing so. The dividend yield is engaging to me and the dividend per share has been rising.

All issues thought of, if I had spare cash to speculate for the time being I’d be glad to tuck this FTSE 250 share into my portfolio.