Wealthy tycoon Warren Buffett recently incorporated Domino's Pizza shares into Berkshire Hathaway's investment portfolio. Is it the opportune moment to invest?
Checking out the investment moves of investing titan Warren Buffett has turned into a normal habit for numerous retail and institutional investors. Buffett's Berkshire Hathaway (BRK.A -0.13%) (BRK.B -0.16%) recently divulged its latest filing, revealing Berkshire's latest stock holdings.
A significant surprise was the new inclusion in the portfolio. Berkshire revealed for the first time that it now owns shares in pizza goliath Domino's Pizza (DPZ -2.20%). Berkshire's most recent 13F filing revealed it bought nearly 1.3 million shares worth $550 million by the market close on Nov. 15. This was the only substantial new stock acquisition.
Owning Berkshire Hathaway stock allows investors to have a piece of Berkshire's portfolio, which has more than doubled in value for investors over the past five years. But delving into the reasoning behind Buffett and his team investing in a specific stock could result in enhanced returns for investors.
Since Warren Buffett appointed Todd Combs and Ted Weschler as investment officers to co-manage Berkshire's substantial stock portfolio, investors typically do not have a concrete idea as to who is responsible for making the final decision on a single stock purchase or sale. Nevertheless, the Domino's addition bears some similarities to a Buffett-led investment.
Buffett prefers high-quality stocks at reasonable prices
Although Warren Buffett still controls 90% of Berkshire's $300 billion portfolio, this leaves plenty of room for Combs and Weschler to manage. Buffett has always been a value investor at heart, and investors should pay heed to this fact, as Domino's seems to be a value pick by Berkshire.
Buffett learned the art of value investing from value-investing luminary Benjamin Graham at Columbia University. Graham also mentored Buffett when Buffett joined his professor's company, Graham-Newman Corporation, in 1954. This value-trained mind could have played a role in considering Domino's for inclusion in the portfolio, as the pizza company's shares took a significant hit in July.
Domino's encountered some turbulence
In its second-quarter report released in July, Domino's spooked investors by forecasting that global net store growth would fall well short of earlier estimates. It lowered its growth expectations by between 175 and 275 stores due to difficulties with one of its major international franchisees. This represented up to a 25% reduction from its previous plans. The stock dropped by more than 13% due to this news.
However, Domino's U.S. business is still thriving. The company still anticipates at least 175 annual net store openings in the U.S. through 2028. While the international business is essential for Domino's growth strategy, it still expects at least 650 new store openings overseas this year.
Domino's aligns well with Berkshire's portfolio
In its subsequent third-quarter report released in October, Domino's did, in fact, reveal that global retail sales growth decreased by more than 200 basis points from the previous quarter. Yet the company still expects 6% annual global retail sales growth this year and an 8% increase in operational income.
Long-term guidance for 2026 to 2028 remains in place. The company anticipates retail sales growth increasing by 7% annually in those years.
Investors have yet to rekindle their interest in the largest pizza company in the world. Domino's shares trade at a price-to-earnings ratio (P/E) below their three-year average and have averaged a P/E of 29 over this period. This metric was as high as nearly 35 prior to the disappointing second-quarter report.
At present, it has a P/E of 26.5, a level it hasn't reached since late 2023 before the July stock-price decline. These price-to-earnings ratios may still not appear like a value-type investment, but Domino's is still a growing company.
Investors seeking a long-term holding might consider following Berkshire's lead and investing in Domino's before the stock reflects a rebound in store growth. Domino's also pays a dividend that currently adds approximately 1.3% to returns annually.
Investors who are interested in emulating Buffett's approach might find value in Domino's stock, given Berkshire's recent investment. With Domino's shares trading at a lower P/E ratio than their three-year average, it could present an opportunity for those seeking a long-term hold with regular dividend payments.
The investment in Domino's, similar to many of Buffett's choices, appears to be a value play, as it aligns with Buffett's preference for high-quality stocks at reasonable prices. Buffett, being a value investor at heart, learned this strategy from value-investing luminary Benjamin Graham.
