Starbucks (SBUX -1.66%) and Domino's Pizza (DPZ 0.34%) have both generated impressive returns for long-term investors. Over the past 10 years, Starbucks' stock rose by roughly 270% while Domino's shares rallied nearly 540%.

But over the past 12 months, Starbucks' stock rose more than 30% even as Domino's stock slumped nearly 20%. Let's consider why these two fast-food darlings have headed in opposite directions -- and which one is the better overall investment right now.

A pizza with a cup of coffee.

Image source: Getty Images.

Starbucks expects a strong recovery

2022 was a challenging year for Starbucks. Inflation drove up its costs while curbing consumer discretionary spending, and ongoing zero-COVID lockdowns disrupted its growth in China. The company also faced an uncertain future as its founder Howard Schultz -- who had returned as its interim CEO -- prepared to hand the reins over to his latest successor, Laxman Narasimhan.

Yet, the coffee giant continued to grow. Revenue rose 11% in its fiscal 2022 (which ended in October), driven by an 8% increase in its global comparable-store (comps) sales. Its robust comps growth in North America and other regions offset a lockdown-related comps decline of 24% in China. It also increased its store count by 3% in North America and 8% in its international markets -- even as inflation reduced its full-year adjusted EPS by 5%.

For fiscal 2023, Starbucks expects its global comps to grow by a percentage toward the high end of the 7% to 9% range -- driven by comps growth that is likewise projected to be in the 7% to 9% range in the U.S. and "outsized" comps growth in China now that it has finally ended its zero-COVID lockdowns. Management believes most of its 2023 improvements in China will occur in the fiscal second half.

It expects global revenue to rise by 10% to 12%, operating margins to expand, and for adjusted EPS to grow at the low end of the 15% to 20% range. Analysts expect revenue and adjusted EPS to rise 11% and 15%, respectively, for the full year.

Starbucks also reiterated its long-term goal of opening about 10,000 new stores by the end of fiscal 2025 to reach 45,000 worldwide locations. As for inflation, it plans to keep offsetting its higher costs with gradual price hikes. Time will tell if Narasimhan, who officially replaced Schultz this month, can keep Starbucks on that promising path -- but the stock's forward price-to-earnings ratio of 31 suggests investors are still fairly confident in the company's future.

Domino's is bracing for more near-term challenges

Unlike Starbucks, which suffered a severe slowdown during the onset of the pandemic in 2020, Domino's experienced a sales boom as it delivered more pizzas to homebound consumers. It also continued to open new stores throughout the crisis.

But that growth spurt set it up for tough year-over-year comparisons as social-distancing efforts eased and more restaurants reopened. In its fiscal 2022, its U.S. comps dipped 1%, international comps stayed nearly flat, and reported retail revenue fell 1%.

On an adjusted basis, which excludes currency headwinds and the impact of an extra week in the fiscal year, Domino's revenue rose 4% -- compared to its 12% growth in fiscal 2021 -- but higher food costs reduced its adjusted EPS by 8%.

It previously expected to generate 6% to 10% sales growth on a constant-currency basis and increase its store count by 6% to 8% on an annual basis over the next two to three years. But at the end of fiscal 2022, it reduced that mid-term outlook to 4% to 8% annual sales growth with a 5% to 7% annual increase in new stores, and said it expected its results would be at the low end of both ranges in fiscal 2023. Analysts expect its reported revenue and adjusted EPS to rise 2% and 8%, respectively, for the full year. 

Domino's stock isn't terribly expensive at 26 times forward earnings, especially considering that its slower-growing rival Papa John's trades at the same multiple. But it's also tough to get excited about Domino's near-term prospects, especially as inflation compresses its margins and it faces competition from other restaurants that are delivering more meals through third-party delivery platforms. Therefore, Domino's stock might need to trade at a lower multiple to attract value-seeking investors.

The better buy: Starbucks

Starbucks' stock is trading at a pricier valuation, but it's better positioned for a strong post-pandemic recovery this year. Domino's was a great growth stock during the pandemic, but it has lost its luster and could struggle in this inflationary environment. Domino's also arguably doesn't have as much pricing power as Starbucks -- which targets higher-end consumers with its pricier beverages. Starbucks' upside potential might be limited, but it's still a much better overall investment than Domino's right now.