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Back in November, I noted that Warren Buffett’s investment company, Berkshire Hathaway, had been buying shares in Domino’s Pizza (NASDAQ: DPZ). I’d been looking at 13F regulatory filings (which show the trades of large money managers in the US), and these had shown that the stock market guru had snapped up 1.27m shares in the pizza chain in the third quarter of 2024.
It seems that these 1.27m shares in Domino’s were just the start for Buffett and Berkshire, however. Because the latest 13F filing (published in the last few days) shows that in Q4 2024, he bought a lot more shares.
Half a billion worth of stock
The latest 13F reveals that in Q4, Berkshire Hathaway bought another 1.1m shares in Domino’s. This increased his position size by 86.5% (which is significant).
We don’t know exactly what price Buffett (or his investment assistants) paid for these shares. However, at today’s share price of $477, we’re talking about approximately $525m worth of stock.
Now, a lot of investors like to copy Buffett’s trades. And it’s easy to see why – over the last half century he’s generated huge returns from the stock market.
However, I’m not convinced that buying shares in the US-listed version of Domino’s Pizza here is the best move. While the company does have a great brand and long-term track record, it currently trades at 27 times this year’s forecast earnings (which is high) and offers a dividend yield of just 1.4% (low).
To my mind, the risk/reward setup is not great at those metrics. If revenue or earnings were to come in below forecasts for some reason (like lower levels of consumer spending), the stock could take a hit.
Does Domino’s UK offer more value?
It’s a different story with the UK-listed version of Domino’s Pizza (LSE: DOM) though. Currently, this stock trades on a price-to-earnings (P/E) ratio of just 14. And the dividend yield is a healthy 3.8%. At those metrics, the risk/reward set-up looks quite compelling, in my view.
I’ll point out that while the two companies share the Domino’s Pizza name (which is one of the most powerful fast food brands in the world), they are different businesses. Whereas the US-listed stock offers exposure to the US market (which is huge) and international franchises, the UK-listed stock offers exposure to the brand in the UK and the Republic of Ireland (much smaller markets).
Given that the UK-listed Domino’s is focused on smaller markets, there’s less long-term growth potential. There is probably also more risk of something going wrong (such as a shift in consumer preferences).
However, I reckon a lot of this is factored into the valuation. A P/E ratio of 14 seems very reasonable to me given this company’s strong long-term track record (revenue climbed from £289m in 2014 to £680m in 2023).
Given the low valuation and healthy yield, I believe that shares in the UK-listed version of Domino’s are worth considering for a portfolio today. Taking a long-term view, I think they have the potential to deliver solid returns.
