Starbucks (NASDAQ:SBUX) and Domino's Pizza (NYSE:DPZ) both became growth stocks over the past decade under visionary CEOs. Starbucks' founder Howard Schultz, who returned as the coffee chain's CEO in 2008, focused on improving its coffee, building a digital ecosystem with online orders and mobile payments, and expanding across China.

Domino's CEO J. Patrick Doyle, who took the helm in 2010, revived the struggling pizza chain by changing its core ingredients and expanding its mobile app and deliveries. Over the past ten years, Starbucks' stock has surged nearly 550% as Domino's stock has skyrocketed 2,630%.

Schultz retired again in 2017 and Doyle retired in 2018, and many investors initially worried about their departures. But Starbucks' stock has risen over 50% since Kevin Johnson succeeded Schultz, while Domino's stock has risen more than 40% after Richard "Ritch" Ellison filled Doyle's shoes.

Do both stocks still have room to run? Let's take a fresh look at both fast-food giants to find out.

A group of friends eat pizza and drink coffee.

Image source: Getty Images.

Starbucks' strengths outweigh its weaknesses

Starbucks' global comparable-store sales rose 3% in fiscal 2019, which ended last September. Its total revenue rose 7% and its adjusted earnings improved 17%.

But in the first nine months of 2020, which bore the full impact of the COVID-19 pandemic in the second and third quarters, its global comps tumbled 23% year-over-year, with a 13% decline in the Americas and a 23% decline in international markets.

Starbucks' total revenue declined 12% year-over-year and its net earnings plunged 80%, with a net loss in the third quarter. Those declines look horrendous, but its declines have been bottoming out. After dropping 10% in the first quarter and another 40% in the second quarter, Starbucks expects its global comps to decline 15%-20% in the fourth quarter.

Starbucks is supporting that recovery with contactless experiences like drive-thru windows, entryway pickup for mobile orders, and more delivery options. Those efforts are paving the way for recoveries in Starbucks' two largest markets, the U.S. and China, where over a fifth of total sales now originate from its mobile app.

Starbucks' U.S. comps turned positive in July, and its China comps stayed positive throughout all three months of the third quarter. It also expanded its global store count by 9% over the past 12 months, which partly offset its loss of revenue from older stores.

Starbucks also likely benefited from the collapse of Luckin Coffee, which briefly surpassed Starbucks as China's largest coffee chain before being derailed by fraud revelations. Analysts still expect Starbucks' revenue and earnings to decline 12% and 66%, respectively, this year. But looking further ahead, they expect its revenue to rise 19% and for its earnings to nearly triple in fiscal 2021 as it moves past the pandemic.

The pandemic generates tailwinds for Domino's

Domino's revenue rose 6% in fiscal 2019, which ended last December, with 3.2% comps growth in the U.S. and 1.9% comps growth overseas, as its adjusted earnings grew 14%. That growth looked robust, but it marked a slowdown from its double-digit sales growth in previous years.

Two Domino's employees make a pizza.

Image source: Domino's Pizza.

However, the pandemic lit a fire under Domino's business throughout 2020, as dine-in restaurants closed down and forced customers to rely heavily on delivery services. Domino's already generates most of its revenue from deliveries, and the expansion of its mobile ecosystem over the past decade enables it to generate over half its revenue from digital channels.

Domino's mature delivery platform and digital ecosystem significantly widen its moat against rivals like Yum! Brands' (NYSE:YUM) Pizza Hut and Papa John's (NASDAQ:PZZA), which have both struggled to match Domino's digital innovations (including smart speaker skills, smartwatch apps, autonomous delivery robots, and carside pickup) in recent years.

Domino's revenue grew 12% year-over-year in the first three quarters of 2020. In the U.S., its comps rose 1.6% in the first quarter, 16.1% in the second quarter, and 17.5% in the third quarter. Its overseas comps grew 1.5%, 1.3%, and 6.2% in the respective periods.

Domino's adjusted earnings grew 33% during those three quarters, even as it expanded its total store count by 4% over the past 12 months. Analysts expect Domino's revenue and earnings to rise by 14% and 29%, respectively, for the full year. But next year, they expect its revenue and earnings to rise just 4% as the pandemic passes and leaves it with tough year-over-year comparisons.

The dividends and valuations

Starbucks pays a forward dividend yield of 2%, which is significantly higher than Domino's yield of 0.8%. Neither stock can be considered a bargain: Starbucks trades at 33 times forward earnings, and Domino's has a forward P/E ratio of 31.

Both stocks are still promising long-term investments, but I believe Domino's is a better buy than Starbucks right now. Starbucks' recovery depends heavily on the pandemic completely passing, and the recent outbreaks across Europe and increases in daily cases across parts of the U.S. suggest the crisis is far from over.

Domino's growth will continue accelerating as long as the pandemic drags on, and it can still generate stable growth if it ends. That key difference indicates Domino's can justify its premium valuation, but Starbucks can't.