Domino's currently trades at $427.48 per share and has shown little upside over the past six months, posting a middling return of 4.5%. However, the stock is beating the S&P 500’s 1.2% decline during that period.
Is now the time to buy Domino's, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Even with the strong relative performance, we're sitting this one out for now. Here are two reasons why we avoid DPZ and a stock we'd rather own.
Why Is Domino's Not Exciting?
Founded by two brothers in Michigan, Domino’s (NYSE:DPZ) is a globally recognized pizza chain known for its creative marketing and fast delivery.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Domino's grew its sales at a tepid 5.4% compounded annual growth rate. 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 5.3%, close to its 5.4% annualized growth for the past five years. This projection doesn't excite us and suggests its newer menu offerings will not lead to better top-line performance yet.
Final Judgment
Domino's isn’t a terrible business, but it isn’t one of our picks. Following its recent outperformance in a weaker market environment, the stock trades at 24.5× forward price-to-earnings (or $427.48 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.
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