
Who are the DAMN?: IA Flash News
Who are the DAMN?
We’re wondering whether it’s time for the ‘FANGs’ to jettison their recent underperformers (Facebook & Alphabet) and replace them with Domino’s (DPZ) & Microsoft (MSFT)– admittedly, FANGs would have to be renamed DAMN stocks but if the cap fits….

Too DAMN hot?
“DPZ – Dominos; MSFT-Microsoft; AAP – Apple; NFLX – Netflix”
A Different Kind of Fang
*Based on global retail sales – S&P Global Research, “Domino’s Pizza Master Issuer LLC (Series 2019-1)”October 31, 2019
It seems likely to us that these buybacks, in conjunction with the positioning of the firm as a disruptor in the fast-food franchising sector have helped fuel its share price growth. This is clearly a very risky strategy. However, it represents a different risk to the challenges that face so-called FANG companies in achieving their financial growth targets and share price expectations.
MBMG IA doesn’t undertake full, detailed coverage on DPZ but is aware that following its IPO in 2004 (having been previously been acquired by private equity company, Bain Capital), it carried substantial debt at relatively high rates. DPZ has managed this debt, largely by conversion to more competitive long-term arrangements, although its net long-term debt has increased significantly in recently years (from around US$ 1.5 billion, to over US$ 4 billion as it has undertaken an aggressive programme of stock buybacks, of almost US$ 3 billion. It has recently started reducing this burden**).
Domino’s differentiates itself from its competitors by claiming more advanced technology and delivery/carry-out oriented store design, as well as providing a price-competitive product menu and innovations such as the 30-minute delivery promise.
Founded in 1960, Domino’s Pizza (DPZ), is the largest pizza company in the world with over 16,500 locations in over 85 global markets.*
** https://www.fool.com/investing/2020/05/27/dominos-repays-100-million-of-debt-following-recor.aspx
Debt-propelled growth?
(and share buy-backs)
The price of DPZ fell relatively sharply following the release of its latest quarterly results, even though it achieved its ambitious sales targets, largely because expenses directly or indirectly related to COVID had risen sharply. It seems that if COVID continues, then these costs may remain high but as long as sales targets are achieved, this may be not only a different but also a lower risk than other FANG-like performing stocks. If COVID doesn’t continue, then these costs should reduce and as long as sales growth can be maintained, DPZ’s share price growth trend should resume.
The biggest concern remains a credit downgrade or inability to service its high debt levels especially as shareholder equity is negative.
In short, DPZ has produced high, FANG-like returns and these haven’t been achieved without substantial risk. However, as FANG stocks themselves now represent extreme systemic and idiosyncratic risks, DPZ may be a useful diversifier, especially during the election period. We believe that a protracted or disputed election outcome may be negative for all stocks but at DPZ may also coincide with strong sales that helps mitigate that.
This is produced for information only and does not constitute a formal buy recommendation.

What could possibly go wrong?
If the election outcome is in any way contested or unclear or challenged between November 3rd and December 14th or January 6th or even beyond, that could trigger a market downward spiral that might have gained too much momentum to reverse by the time that the pilots try to ‘regain control’ or at the very least could provide a major buying opportunity if they do and the election outcome, along with the recent DoJ announcements regarding investigations into Alphabet’s market dominance, could become a post-election headwind for ‘Big Tech’.
Such an environment might give rise to conditions where DPZ might offer more attractive risk-adjusted characteristics than some of those Big Tech stocks.
(Note: Final Presidential Debate is on 22nd October).
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