Shares of Domino's Pizza (NYSE: DPZ) rallied 15.1% during November, according to data from S&P Global Market Intelligence.
Domino's didnt reportearnings during the month, but nonetheless received votes of confidence not only from Wall Street analysts, but also from the Oracle of Omaha himself.
Warren Buffett takes a bite of Domino's
In mid-November, large hedge funds, mutual funds, and holding companies file their 13F filings, disclosing their buys and sells made during the prior quarter. On Nov. 14, Warren Buffett conglomerate Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) disclosed it had taken a stake in Domino's during the third quarter.
Having Buffett's confidence gave a boost to the stock, especially in light of the fact that Berkshire has been a big net seller of stocks this year, not a buyer. While the purchase could very well have been made by one of his investment managers Todd Combs or Ted Weschler and not Buffett himself, the disclosure may still have refocused investors on Domino's competitive advantages and cash-generative business model.
But it wasn't only Buffett giving the thumbs-up to Domino's -- sell-side analysts on Wall Steet did, too. Early in the month, Loop Capital raised its price target from $419 per share to $559 while upgrading its rating from neutral to buy, after channel checks with franchisees indicated same-store sales would likely exceed analyst expectations this quarter. Additionally, analysts at Cowen raised their price target on shares from $475 to $515 after an encouraging meeting with management and its "Hungry for More" strategy. The HFM strategy, unveiled last December, includes four pillars: product innovation, operational excellence, renowned value -- including customer discounts and a loyalty program -- and best-in-class franchisees.
Does Domino's belong in your portfolio?
Although the HFM strategy merely seems like good standard business practices, the focus on basic "blocking and tackling" appears to be paying off. Although the quick-service restaurant category has struggled this year as consumers feel the pinch of cumulative years of inflation, Domino's Pizza is a value offering with efficient delivery, and management noted that the company had taken market share in the "down" restaurant market. Meanwhile, Domino's heavily franchised business model generates a lot of profits.
Currently, shares still trade 15% below their all-time high and are valued at 28 times earnings. While that's a high-looking valuation for a Buffett investment, it's actually a reasonable valuation compared with Domino's stock history. Thus, shares may be worth a look for investors even after the strong month.
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Billy Duberstein and/or his clients have positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Domino's Pizza. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
