Domino’s on Top of the Fast Food Trio
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Recent financials of Domino’s Pizza (NYSE: DPZ) hint at its ever-growing share in the overall restaurant industry. As it wrapped up FY 2012, the pizza chain proved to have generated surging system-wide sales, with a remarkable 6.2% increase in its overall operating income. Its chronic growth is ascribable to the single-digit increases of its store sales, particularly in the United States, where sales are triggered by the almost doubling number of its stores operating worldwide. The restaurant industry giant currently operates 5,000 stores in over 70 countries around the world. It also helps that these stores are situated in the most strategic locations, where both dine-in and carryout pizza practices are very well adopted.
Camouflaged downside of Dunkin’s snappy growth
Dunkin’ Brands Group (NASDAQ: DNKN), the owner and operator of one of the strongest donut chains in the world, Dunkin’ Donuts, can boast of the 6.1% increase in its revenue and the 52-week 15.3% jump in its adjusted operating income, juiced up by the over 665 new restaurants that it opened in fiscal year 2012. But looking at its financials, it is quite open and shut that there could be an underlying downside. First, its most recent price to earnings ratio of 53.81 indicates that the business is extremely overpriced, and its short term growth that has led to its over-aggrandizement accounts for it. While the price to earnings ratio of its stocks this year is seen to hit a more legit integer of 20.89, the odds of achieving that reasonable value will remain naught unless its stock manages to be at a standstill for two consecutive years.
The condition does not automatically rule out the possibility of Dunkin rewarding shareholders, but taking the business as a buy is still clear as dishwater at the moment. To ensure good returns, investors have yet to see if this newcomer will manage to expand and get the bigger share of the pie in the coming years.
Wrong formula for Yum! Brands
Another component of the quick-service trio, Yum! Brands (NYSE: YUM), is a strong contender. The firm recently reported a full-year 2012 EPS growth of 13%, marking its 11th year of being on easy street. Its strength in the emerging markets is seen to serve the major driving force for its future growth, especially now that China is making a run for being the highest contributor in its international sales with an accounted 50% of its total operating profit in 2012.
It is important to note, however, that the US market is declining just as these emerging markets are booming. And it is tongue in cheek, considering that US is where Yum! Brands such as KFC, Pizza Hut and Taco Bell originally took off. The firm’s formula for growth is overhanging, since too much focus on the emerging markets may mean drifting away from the US market, which used to be its steadiest stronghold. It has to maintain the equilibrium between both markets, so in the event that the Chinese and other emerging markets flake out, there will still be the US market to serve as its fallback.
Where rivals fail, Domino’s Pizza gets Ahead
Apparently, both Dunkin’ and Yum! currently show strong fundamentals, but a closer look at the figures reveals more of the downsides that may get in the way of their sustained growth. On the other hand, Domino’s Pizza’s consistent gain of roughly 245% for the past five years, skyrocketing operating cash flow and competitive business model place the firm in a much better position ahead. Especially now that its recent fourth quarter report accounted $0.64 per share net income that was $0.04 per share higher than projections, it is without a doubt that this fast food giant remains seated on top of the competition and guarantees considerable profits to investors.
Jeremiah Feliciano has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!