We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Domino’s Pizza, Inc. (NYSE:DPZ) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A stack of pizzas prepared in a wood-fired oven, with fresh ingredients laid out beside them in the kitchen.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Domino’s Pizza, Inc. (NYSE:DPZ)
Number of Hedge Fund Holders: 52
Domino’s Pizza, Inc. (NYSE:DPZ) is an American pizza company with a significant global presence, operating around 20,500 stores in over 90 markets.
In December 2023, Domino’s Pizza, Inc. (NYSE:DPZ) announced a five-year strategy called ‘Hungry for MORE’, which would serve as a blueprint for driving sales, expanding units, and improving profits. The acronym MORE implied “most delicious food”, “operational excellence”, “renowned value”, and “enhanced by best-in-class franchisees and team members.”
CEO Russell Weiner, while speaking to the Q3 earnings call last month, stated that while drafting this strategy, Domino’s was aware of the looming consumer spending crisis in 2024, and the company focused on offering the strongest value to consumers through promotional offerings, giving them ‘more for less’. The strategy has proven to be a great success.
Retail sales have surged 6.6% during the first three quarters of 2024, while the broader QSR pizza industry has grown by only 2%. Q3 was the fourth successive quarter of same-store sales growth since the launch of the strategy in December last year, and the fourth straight quarter of positive order count growth.
Domino’s Pizza, Inc. (NYSE:DPZ) has also been expanding at a rapid scale. Between 2015 and 2023, the company opened around 1,750 new stores. This was almost as much as the stores its pizza competitors in the QSR industry closed during the period. This impressive rate of opening is likely to prove to be the catalyst driving future order count growth, as customers continue to repeat purchases because of the value offered by Domino’s.
In Q3 2024, the company posted $52.8 million in revenue, up 5.1% from last year. This was attributed to higher order volumes and an increase in Domino’s food basket pricing to stores. US franchise advertising and US franchise royalties and fees also increased during the quarter. Income from operations increased 5% year-over-year. EPS was logged at $4.19, comfortably beating expectations of $3.71 per share.
Considering a robust performance over the past year, Wall Street analysts have a consensus Buy rating on DPZ, with a median share price upside potential of 11.6%. Domino’s Pizza, Inc. (NYSE:DPZ) is one of the best fast food stocks to invest in right now, with 52 hedge funds, amongst those tracked by Insider Monkey, having a stake in the company as of the end of Q2 2024.
Overall, DPZ ranks 2nd among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DPZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.