What can help us improve our investment strategy? No doubt we will learn from our best investments. In our case, this was an investment in Domino’s Pizza Inc (DPZ). You purchased 57 shares of Domino’s Pizza for $190 per share in October 2017.
So we hold this investment for 4 years and 3 months. Our unrealized gain on this investment is 267%. Not bad for a four year return. To make the deal even better, we got a profit of $712. We can easily sell our initial investment of $10,830 making this investment lossless. The arrow indicates the buy point at the right time on the chart.
How did you start?
There was a Domino’s Pizza store near our house and we were occasional customers of that store. Sometimes we would pick up pizza or order directly with the kids. On one such occasion, I asked my eldest son what he thought about investing in Domino’s Pizza. I always try to discuss investment ideas with our kids. My son told me that there are other pizza shops in the area and maybe the pizza itself is not the best but we get the best deal considering the price and quality of the pizza. Then I checked the company’s revenue and earnings per share, both of which were increasing, so the decision was made and we bought 57 shares. How proud I am today when I talk to my children and remind them and show them this investment.
What did we do after buying the shares?
Nothing at all. I have a friend sitting at the poker table who, when we asked him what he had when he won a hand without showing the cards, would always answer “nothing at all.”
It’s ideal, to do nothing, maybe just watch how your investment grows.
We can see that the price fell by about 15% in about six weeks after the purchase. Did we worry about that? No, if nothing changes in the fundamental business, we know that the market may be irrational for a long time. I was paid to do nothing.
Look carefully at the assets before purchasing
Revenue in millions increased from $1,463 in 2007 to $2,788 in 2017.
Operating margin improved from 13.26% to 18.7% in the same period of that decade.
Net income in millions increased from 38 in 2007 to 278 in 2017.
Earnings per share (EPS) increased from $0.61 in 2007 to $6.05 in 2017.
The return on invested capital (ROIC) was also impressive
I loved it in 2017 when I was looking at these numbers and I love it now too. I will set these criteria as my research criteria for new stocks I will buy.
We bought the shares when the PE ratio was 32 and the PS ratio was 3.23.
The shares were on an uptrend starting at the end of 2008. There was a slight increase in the price which gave investors the opportunity to load up on more shares.
Current DPZ Rating
It is easy to see that the trend is up, and the price is above the 200 moving average all the time.
The forward PE is 32.79 and was roughly the same at the time of purchase.
The 3-year earnings growth rate is 19.2%. These are great hikes and we love them.
Analyst estimates are positive, and revenues, EPS and earnings are trending north.
How can we improve the investment strategy based on our first winner analysis?
Revenues did not increase from year to year, there were years where revenues declined slightly, but revenues nearly doubled over a 10 year time frame. So, for the search criteria, I will use the 10-year average revenue growth rate of about 10%.
Earnings per share (EPS) have grown from year to year. I will set the EPS growth rate at 10% over the past 10 years in the examination.
I enter another parameter into the research 10-year average ROIC (return on invested capital) to be higher than 25%.
Market capitalization greater than $1.0 billion to exclude small-cap companies.
So the final gurufocus.com screen is as follows:
- Market cap is above 1.0 billion
- Average revenue growth over 10 years of 10%
- EPS growth rate of 10% over the past 10 years
- ROIC higher than 25%
28 companies appeared in this screening run gurufocus.com
Some of the companies on this list are worth paying attention to and perhaps researching so that we can include them in our investment portfolio.