Domino’s Pizza Enterprises Ltd (ASX: DMP) shares are on fire right now. The Domino’s share price rocketed 2.3% higher yesterday to a new record high of $86.16 per share.
This comes on the back of a bumper full-year earnings result and a strong growth outlook for the years ahead.
Many investors may be wary of buying ASX shares at record highs, especially in the current market. Here’s why I still like the Domino’s share price even at its lofty valuation.
What’s moving the Domino’s share price?
The big catalyst for the recent moves was a strong annual earnings release on Wednesday.
Domino’s reported a 5.8% increase in same-store sales growth with revenue of $5,624.9 million for the year ended 30 June 2020 (FY20).
Earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 7.3% to $303 million while net profit after tax (NPAT) was up 3.3% to $145.8 million.
The Domino’s share price surged higher after reporting a 90.6% increase in free cash flow and a 3.3% dividend per share increase to 119.3 cents.
Those are some strong headline earnings figures particularly given the current challenges. Investors have responded by buying up big and sending the Domino’s share price surging to a new record high.
Why I think Domino’s is still a buy
There are a few things I like about the current outlook. The first one is a strong growth profile underpinned by core markets.
Sales across Australia and New Zealand, Japan and Europe were all up in FY20. Japan looks to be a particularly strong market with a further 75 stores added last year.
That’s good news for Domino’s shareholders who are seeking out future growth. There’s no doubt that needs to be realised with the Domino’s share price trading at a price-to-earnings (P/E) ratio of 55.8.
Investors will be naturally wary of buying in at an all-time high. Domino’s has previously been on a strong growth trajectory (back in 2014–2016) before falling off the wagon.
That means shareholders will understandably be cautiously optimistic about the current outlook. The coronavirus pandemic presents some challenges but Domino’s earnings have been resilient thus far.
That to me says the Domino’s share price could continue to climb based on careful expansion and strong cash flow.
Foolish takeaway
The Domino’s share price has positive momentum behind it but there is some substance there.
An increased dividend reflects management’s confidence in future cash flow and I think that’s good news for investors.
I think Domino’s is ticking the boxes for organic growth and strong earnings that make it worth a look.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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