Domino's Pizza (DPZ 0.55%) has attracted some unexpected attention in recent years. Its stock has traded since 2004, and despite the highly competitive nature of the pizza industry, it has returned more than 7,800% between a rising stock price and dividend payments.
Amid that growth, Domino's has beaten the market in 2025. Moreover, Warren Buffett's company, Berkshire Hathaway, has increased its share holdings in every quarter since the third quarter of 2024. Do those moves mean investors should follow Buffett's team into this pizza stock? Let's take a closer look.
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Domino's growing popularity
Domino's has long stood out in the pizza business for its franchises, which delivered pizza decades before delivery services like DoorDash became commonplace.
Despite such emerging competitors, Domino's remains the world's largest pizza delivery company. Additionally, it has switched to a primarily digital platform, which drove more than 85% of sales in 2024.
Even as it adapts that business model, Domino's operates more than 21,500 locations across 90 countries. It derives revenue from franchise fees, royalties, its in-house supply chain, and company-run stores in the U.S.
Although the supply chain and company-run stores generate the majority of the company's revenues, the high costs associated with these businesses mean that franchise fees and royalties likely account for the majority of the company's profits.
This emphasis on such higher-margin enterprises may have attracted Buffett's team to this stock. Nonetheless, it is also worth asking whether Domino's will continue to beat the market in the current environment.
What the company's numbers show
Investors are likely to have mixed reactions to Domino's results and financial condition.
In the second quarter of fiscal 2025 (ended June 15), its revenue rose to more than $1.1 billion, a 4% increase from year-ago levels. The fact that store additions accounted for most of its revenue growth may disappoint Domino's stock bulls. As mentioned earlier, the company operates approximately 21,500 locations worldwide. That rose by 600 locations or 3% over the last year, a rate that nearly matches the overall revenue growth.
During Q2, Domino's reported higher operating profits, but $16 million in unrealized losses weighed on the bottom line. Consequently, Domino's reported $131 million in net income, an 8% drop from year-ago levels.
However, the financials offered some good news, and one factor that could have attracted Berkshire's interest is the improvement in free cash flow. In the first half of fiscal 2025, free cash flow was $332 million compared to $231 million in the same quarter last year.
Berkshire may have also bought Domino's because of its dividend growth. Its annual payout of $6.96 per share amounts to a dividend yield of about 1.5%, not far above the 1.2% average for the S&P 500. Still, Domino's raised its dividend by 15% earlier this year, the 12th consecutive annual increase for the company. Such an increase and the continuing streak of payout hikes is an explicit vote of confidence for its ability to drive returns for shareholders.
The question for investors is whether the dividend bolsters enough confidence to justify its valuation. At a P/E ratio of 28, Domino's is slightly cheaper than its five-year average earnings multiple of 30. Still, that is likely not low enough to attract value investors, a factor that may not bode well for the stock's continued growth.
Is it time to buy Domino's Pizza stock?
Given the current state of Domino's and its financials, the stock is likely a hold at current levels.
Admittedly, that may differ from Berkshire's view, as it added shares over the three prior quarters. Moreover, the store additions serve as a tailwind, and the overall history of Domino's stock points to outsized returns to its investors.
Nonetheless, Domino's is not a cheap stock at 28 times earnings. Additionally, most of its revenue growth came from store additions, and its dividend yield is only slightly above S&P 500 averages. Such returns should serve longtime shareholders well, but they offer little motivation to buy additional shares or choose Domino's over the indexes. Thus, investors should probably keep Domino's on a watch list rather than adding shares at this time.
