Do Domino's Pizza Enterprises's (ASX:DMP) Earnings Warrant Your Attention?

By
Simply Wall St
Published
November 18, 2021
ASX:DMP
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Domino's Pizza Enterprises (ASX:DMP). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Domino's Pizza Enterprises

Domino's Pizza Enterprises's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Over the last three years, Domino's Pizza Enterprises has grown EPS by 15% per year. That's a pretty good rate, if the company can sustain it.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Domino's Pizza Enterprises's EBIT margins were flat over the last year, revenue grew by a solid 16% to AU$2.2b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
ASX:DMP Earnings and Revenue History November 18th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Domino's Pizza Enterprises?

Are Domino's Pizza Enterprises Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's good to see Domino's Pizza Enterprises insiders walking the walk, by spending AU$288k on shares in just twelve months. And when you consider that there was no insider selling, you can understand why shareholders might believe that lady luck will grace this business. We also note that it was the Independent Non-Executive Director, Tony Peake, who made the biggest single acquisition, paying AU$191k for shares at about AU$137 each.

Along with the insider buying, another encouraging sign for Domino's Pizza Enterprises is that insiders, as a group, have a considerable shareholding. Notably, they have an enormous stake in the company, worth AU$552m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Domino's Pizza Enterprises To Your Watchlist?

One positive for Domino's Pizza Enterprises is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. It is worth noting though that we have found 2 warning signs for Domino's Pizza Enterprises that you need to take into consideration.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Domino's Pizza Enterprises, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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