3 Reasons Why Domino’s Pizza Stock Could Be a Great Buy for Warren Buffett-Like Investors

On any given morning in Omaha, Nebraska, we can expect to find Warren Buffet buying breakfast locally McDonald’s. Billionaire investor loves to stop by the hamburger chain on his way to the office to manage his trillion-dollar empire Berkshire Hathaway. But when it comes to Berkshire’s latest investment, it’s not about buying Buffett’s beloved burgers. Buying more shares Domino’s Pizza (DPZ 3.49%).

On November 14, Berkshire Hathaway announced that it had acquired approximately 1.3 million shares of Domino’s Pizza. But investors can’t say for sure that the decision to buy the pizza stock came from Warren Buffett. At the age of 94, he began to entrust his investment decisions more to some people around him.

However, what Buffett looks for in an investment is well known, and those in his inner circle are just as likely to consider investing as he is. So whether it was his direct choice or the decision came from someone else, investors can trust that Domino’s Pizza shares check some important boxes for Buffett.

Here are three things about Domino’s Pizza stock that I think might interest Buffett: And these are why it’s a great stock to buy for those approaching investing like him.

1. The dominant pizzeria is easy to understand

“Never invest in something you don’t understand.” –Warren Buffett

If you are going to be an investor, you need to be a business analyst. But things can be complicated, and Buffett is the first to admit he doesn’t understand everything there. That’s why he says he only invests in businesses within his “circle of competence.”

restaurant stocks It is among the easiest businesses to understand.

With more than 21,000 locations worldwide, Domino’s is the world’s largest pizza business In the world. But it doesn’t operate most of its restaurants. In contrast, restaurants are primarily operated by franchisees. This increases the simplicity of the job.

Therefore, Domino’s main goal is to keep the food product in the minds of consumers and ensure that its franchisees remain profitable. Risks associated with the conduct of daily operations are assumed by third-party franchisees. While it’s not always complicated, some companies do this better than others. And there’s no denying that Domino’s has enjoyed unquestionable success over the last decade.

2. Domino’s has a competitive advantage

“A truly great business must have a permanent moat.” –Warren Buffett

Investors know Domino’s is in the pizza business. But few people realize that the company derives most of its revenue from supply chain services. For context, supply chain revenue in the third fiscal quarter of 2024 was over $650 million, accounting for 60% of its total revenue.

Domino’s delivers pizza dough, toppings, and even food preparation equipment through its supply chain. The size of the supply chain also enables the company to benefit from efficiencies of scale. Franchisees are not required to use their services. But they are incentivized through profit-sharing agreements, leading to strong adoption levels.

In short, Domino’s offers an attractive service to its franchise owners here. This can increase satisfaction, help restaurants stay open, and even lead them to open new locations. In my opinion, this is something that gets overlooked. competitive advantageotherwise known as one ditch.

Companies with a competitive advantage often have higher profit margins than their competitors. And in this case, Domino’s actually has an advantage. operating margin This is consistently better than the best competition Papa John’sAs shown in the chart below.

DPZ Operating Margin (TTM) data Y Charts

3. Gives back to shareholders

Yes, Domino’s is a huge and easy to understand business. And it is in a strong competitive position that allows for strong profitability. But Buffett also cares about finding companies that return cash to shareholders.

Domino’s pays a growing dividendIt’s something Buffett certainly appreciates. But also regularly buys back shares. As Buffett wrote in his 2022 letter to shareholders, “The math is not complicated: When the number of shares falls, your Interest in many of our businesses is increasing above“

DPZ Dividend data Y Charts

Domino’s Pizza is in an excellent position to create long-term shareholder value from here for the three reasons I highlighted. There are other important investment factors to consider, including valuation and other metrics. But for now, suffice it to say that Domino’s is the type of business investors should be looking for. I’m also not surprised that Berkshire Hathaway feels like it belongs in his stock portfolio.