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FTSE 250 investing: Why I’d buy Domino’s Pizza Group’s shares now

Manika Premsingh
·3-min read
Business development to success and FTSE 100 250 350 growth concept.
Business development to success and FTSE 100 250 350 growth concept.

The Domino’s Pizza (LSE: DOM) share price is near all-time highs, marking a break from the see-saw movements seen over the past few years. I think investor bullishness on the FTSE 250 stock is here to stay for several reasons. Here’s why.

Good past performance

Restrictions on economic activity this year meant that only a few sectors were functional. These included healthcare, supermarkets, online stores, and food delivery. It followed that their performance would have suffered less than say, real estate, entertainment, or luxury goods. Domino’s, with its leadership position in pizza delivery, has been a natural beneficiary of this trend. Even now, the pandemic is driving people’s decisions to venture out and ordering in is a safer, next-best option to eating out.

This has shown up in the company’s results. DOM’s last set of numbers, released in August, were nothing to write home about. But, they were obviously less impacted than aviation or hotel stocks were by the pandemic lockdowns. The FTSE 250 pizza company saw a 5.5% increase in revenue and, while its profits fell, it still made a profit.

Domino’s has also continued to pay dividends. Its dividend yield isn’t notable, but just the fact that it’s still paying dividends says something about its financial health. Many companies, including FTSE 100 biggies, stopped paying dividends at the height of the pandemic either because their performance didn’t allow payouts or they anticipated hard times ahead. Not DOM. This gives me some faith in continued robust performance.

FTSE 250 stock with prospects

Besides dividends, Dominos’ continued job creation is another sign that it’s doing well. It’s hiring 5,000 more people in the UK now. At a time when unemployment in the UK is rising, this is an impressive trend. Even with rising economy-wide unemployment though, it’s somewhat reassuring that the UK’s economy has started growing again. This is a sign for continued demand for companies like DOM.

Even though the economy’s slowly getting back on track, many sectors have been left battered by the lockdown. On the other hand, Domino’s has been able to at least maintain if not enhance its position during this time. As a result, even now it continues to look like a comparatively better investment than other stocks.

The verdict

It’s no surprise then, that its share price has run up. There’s of course the risk of buying a stock at a high price. Except, that in this case I think there’s much room for more. As long as the pandemic situation remains uncertain, I reckon that DOM will continue to do well. I last wrote about it almost two years ago, when it was facing quite another situation. It has come a long way since, with a share price increase of over 43%. But I think there are still gains to be made. I’d buy before its trading statement is released this Thursday.

The post FTSE 250 investing: Why I’d buy Domino’s Pizza Group’s shares now appeared first on The Motley Fool UK.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020