Domino’s Pizza (DPZ 5.38%) stock posted substantial gains in Thursday’s trading. The pizza chain’s share price closed out the daily session up 5.4% and had been up as much as 10.3% earlier in trading. Meanwhile, the S&P 500 index ended the day up 0.5%, and the Nasdaq Composite index ended the day up 0.2%.
Domino’s gains today came amid gains for the broader market and a favorable indicator for the restaurant industry. Brinker International, which is the parent company of chains including Chili’s and Maggiano’s Little Italy, posted quarterly sales and earnings performance yesterday that came in far above the market’s expectations.
Same-store sales for Chili’s restaurants grew an impressive 31% compared to the prior-year period, which helped overall sales increase 26.2% year over year to hit $1.35 billion and surpass the average Wall Street target’s call for revenue of $1.25 billion. Non-GAAP (adjusted) earnings per share for the quarter came in at $2.80, crushing the average analyst estimate’s call for adjusted per-share earnings of $1.86. Brinker International’s results signaled a favorable operating backdrop for the chain restaurant industry, and investors responded by bidding up Domino’s Pizza stock today.
Is Domino’s Pizza stock a buy right now?
Investors won’t have to wait too long to see if Domino’s is benefiting from the same trends that helped power great results for Brinker. The pizza leader is scheduled to publish its fourth-quarter results before the market opens on Feb. 24.
It’s unlikely that Domino’s will see sales growth in line with what Brinker posted yesterday, as those results were largely driven by a comeback for the Chili’s chain on the heels of softer performance, but the pizza delivery giant could still be a worthwhile investment.
The casual dining industry tends to see significant cyclical shifts, and there’s a good chance that Domino’s will see some benefit from the same favorable consumer backdrop lifting Chili’s and Brinker. But with Domino’s now trading at roughly 26 times this year’s expected earnings, investors should understand that some strong performance is already priced into the stock.
The good news is that Domino’s is serving up fantastic margins and has room for moderate expansion on the profitability front. The company should also continue being able to deliver mid-single-digit sales growth in the near term and pave the way for stronger revenue expansion as it expands its international footprint. So while the stock isn’t exactly dirt cheap at current prices, investors are getting a strong, highly profitable company that looks poised to post strong results over the long term.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino’s Pizza. The Motley Fool has a disclosure policy.
