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Why Domino's Pizza, Inc. Jumped 11.5% in October

By Joe Tenebruso – Nov 13, 2016 at 2:00PM

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As other restaurants struggle, this pizza chain continues to dominate.

Image source: Domino's Pizza.

What happened

Shares of Domino's Pizza (DPZ 2.10%) jumped 11.5% last month, according to data provided by S&P Global Market Intelligence. The pizza chain delivered mouth-watering same-store sales growth that was the envy of the restaurant industry.

So what

Despite fears of a "restaurant recession," Domino's delivered a staggering 13% jump in same-store sales  in the third quarter, making it the 22nd consecutive quarter of positive growth for its U.S. business. Domino's international operations also performed well, with same-store sales rising 6.6%, marking the 91st consecutive quarter of international comps growth. This type of strong, consistent growth is particularly appealing to investors at a time when many former industry darlings are struggling with sluggish and even declining  sales.

And it's not just higher sales that Domino's is delivering; the business is also becoming more profitable as it expands. Net income rose 24.8% year over year to $47.2 million in the third quarter, and earnings per share -- boosted by Domino's share repurchases over the past year -- surged 43.3% to $0.96.

Helping to drive these strong results for Domino's is the company's expertise in digital ordering. Domino's allows its customers to place their orders through a wide range of digital platforms, including texts, Facebook Messenger, and even a "zero-click" app that quickly sends an order 10 seconds after it's launched. Together, these ordering methods have helped Domino's reach a level where more than 50% of its business comes from digital orders, compared to about 20% for the industry as a whole. That's a strong competitive advantage, as the data collected from online orders allows for more targeted advertising and customer communications that encourage repeat business.

Now what

Domino's share price has pulled back a bit so far in November, likely because now that the election has passed -- which was noted by several restaurants as a reason for their slowing traffic -- some investors may believe that more people will choose to eat out once again, which could lessen some of Domino's in-home advantages. However, if you believe, as I do, that the "stay-at-home economy" is a long-term trend with powerful drivers beyond simply an election news cycle, then Domino's shares could be worthy of your consideration, even at these elevated levels.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool is short Domino's Pizza. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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