Tag: Motley Fool Australia

Before the coronavirus pandemic spooked investors in February, I think Commonwealth Bank of Australia (ASX: CBA) was arguably the top ASX dividend share on the market.

The CommBank share price was approaching its all-time high and pushing towards the $100 per share mark. However, the February/March bear market changed all that and sent the S&P/ASX 200 Index (ASX: XJO) tumbling lower.

Since bottoming out in mid-March, however, CommBank’s shares have surged in value. In fact, the Aussie bank is currently worth a whopping $121.4 billion and is one of the largest ASX companies by market capitalisation.

So, despite a bank dividend cut and other headwinds, could Commonwealth Bank still be the best ASX dividend share going around?

Why CommBank is still a top ASX dividend share

I think it’s worth remembering that a top ASX dividend share doesn’t actually have to be paying a dividend right now.

CommBank paid out an interim dividend of $2.00 per share just before APRA piled the pressure on the Aussie banks. While we could well see little or no dividend in August, this shouldn’t be a big issue for long-term investors.

Let’s assume the Commonwealth Bank share price more or less represents the present value of its future cash flows. That means investors are trying to value CommBank based on its long-term future prospects.

If we take one dividend payment out of a discounted cash flow (DCF) model for the banking giant, it shouldn’t affect its value too much. This means it’s not worth panicking about the prospect of no dividends being announced in August.

Is Commonwealth Bank the best buy on the market?

According to the ASX, CommBank shares are yielding 6.08% as of Monday’s close. Of course, that number could theoretically be zero if the bank declines to pay a distribution to shareholders.

I think in the long-term, though, Commonwealth Bank remains one of the best ASX dividend shares. Despite competition from neobanks and offshore competitors, CommBank still churned out a $4.5 billion profit in February.

If you’re after a steady income stream in the short-term, however, CommBank may not be for you. Instead, you may prefer to take a look at some other ASX dividend shares such as Harvey Norman Holdings Limited (ASX: HVN) which is even paying a special dividend in 2020.

More reading

• Is it time for a plan B with ASX 200 shares?
• Saracen Mineral and 2 other companies defying the ASX 200
• 2 biggest areas of risk for ASX bank stocks that are being overlooked
• Why Domino’s share price is smashing the market
• Down 15% in 2020! Why I like the Domain share price today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amid a public outcry and a growing boycott by companies that advertise on its platform, Facebook (NASDAQ: FB) said it will begin to block content that violates the company’s policies. In a post to his Facebook page on Friday, CEO Mark Zuckerberg shared new measures designed, as he said, “to connect people with authoritative information about voting, crack down on voter suppression, and fight hate speech.”  

Zuckerberg also said Facebook would take down any post that incites violence or suppresses voting. “Even if a politician or government official says it, if we determine that content may lead to violence or deprive people of their right to vote, we will take that content down,” he said. The company plans to label certain other posts that it deems “newsworthy” that might otherwise violate its policies.

In recent days, more than 90 marketers have joined a boycott of Facebook — the “Stop Hate For Profit” campaign — originally organised by the Anti-Defamation League, the NAACP, and other civil rights groups. The groups criticised Facebook for not providing more robust fact-checking and for failing to remove political posts containing false or misleading information. The platform has also been accused of being too lax on combating hate speech and not labelling inflammatory posts. 

The campaign seemed to hit a turning point late last week when a number of high-profile advertisers, including consumer goods giant Unilever (NYSE: UL), Coca-Cola (NYSE: KO), and Verizon (NYSE: VZ), joined the boycott. The defections continued over the weekend as Starbucks (NASDAQ: SBUX) and Diageo (NYSE: DEO) joined in. 

In a statement on the company’s website, Starbucks said, “We will pause advertising on all social media platforms while we continue discussions internally, with our media partners and with civil rights organizations in the effort to stop the spread of hate speech.” 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These 2 ASX shares are perfect for a beginner investor
• Will Facebook stock surge to $300?
• Can these 5 FY20 dogs of ASX 200 bounce back in the new financial year?
• Why MOAT is my favourite ASX ETF
• ASX investors brace to ride the next wave of “irrational exuberance”

Danny Vena owns shares of Facebook and Starbucks. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia has recommended Facebook. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The S&P/ASX 200 Index (INDEXASX: XJO) fell by 1.5% yesterday, dragged down by most of the market. However, there was a number of shares that were able to defy the index and rose significantly. I think this is a good indicator of things to come. Good companies will always be good companies and we seem to be drifting back to a market that values quality.

Record results

ASX 200 company Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) announced a record result. In a preliminary final report released 29 June, net profit for FY20 rose by an amazing 37%. Products to treat COVID-19 patients and strong hospital hardware sales drove the increase.

Optiflow™ nasal high flow therapy and respiratory humidifiers, from the company’s Hospital product group, saw unprecedented demand. In addition, the company also saw its Homecare product group increase revenue by 9%. This includes products for obstructive sleep apnea (OSA) and respiratory support in the home.

Fisher & Paykel saw its share price rise by 6.37% since Friday’s closing price.

Gold rush

Several gold mining shares in the ASX 200 rose on Monday as investors ran to safe havens amid falling equity prices. This included Saracen Mineral Holdings Limited (ASX: SAR) and Silver Lake Resources Limited. (ASX: SLR). However, it was the Evolution Mining Ltd (ASX: EVN) share price that outperformed the rest with a 4.5% rise since Friday’s closing price.

H1 of FY20 saw the company achieve record profit, record cashflow, become debt-free and continue healthy margins with a net group cash flow of $242 million. It is also ramping up production on its acquisition of Red Lake in Ontario Canada, a high-grade long-life orebody. As a fiscally conscious company, it recently sold its mine at Cracow. 

The US gold price is within striking distance of $1,800. I have no doubt at all that as long as things remain volatile, gold mining companies will sell at a premium. 

A tech stock outside the ASX 200

Outside of the ASX 200, one of the big movers was mid-cap tech company FINEOS Corporation Holdings PLC (ASX: FCL). This Dublin based company is diligently working away developing and selling software for insurance and government social insurance. It claims to be “the leading core platform for life, accident and health insurance globally”. The software is an enterprise-level package which is also web-based. 

After listing on the ASX in August of 2019, the company reported an increase in revenues of 37.7% for H1 FY20. Today the company got a boost after announcing a new client acquisition. F&G is a provider of annuity and insurance products from Des Moines, Iowa. F&G and will use FINEOS in both these areas. 

The FINEOS share price jumped up by 5.87% since the close of trading on Friday.

Foolish takeaway

It would be cynical to see these spiking share prices as a futile attempt to profit as the ASX 200 falls. However, the market will likely still value announcements that provide evidence of value. Nevertheless, some shares are still a little random. For example, Polynovo Ltd (ASX: PNV) rose today in defiance of the market. Lastly, gold miners have their own counter-cyclical dynamics playing out right now.

More reading

• Is it time for a plan B with ASX 200 shares?
• Is CommBank still the best ASX dividend share to buy?
• 2 biggest areas of risk for ASX bank stocks that are being overlooked
• Why Domino’s share price is smashing the market
• Down 15% in 2020! Why I like the Domain share price today

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia has recommended FINEOS Holdings plc. 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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ASX banks will be exiting financial year 2020 with their tails between their legs, but investors may not fully appreciate the key areas of risk to their earnings.

The worst performer over the past year is the Westpac Banking Corp (ASX: WBC) share price, which fell around 37%. The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price isn’t far behind with a 33% drop.

The National Australia Bank Ltd. (ASX: NAB) share price comes next with its 31% fall from grace while Commonwealth Bank of Australia (ASX: CBA) share price shed 17% over the period.

CBA shareholders shouldn’t feel too smug. That’s still a meaningful 7% behind the S&P/ASX 200 Index (Index:^AXJO).

Business loans are the bigger risk

The impact from the COVID-19 pandemic on the sector is well flagged. Mortgagees who’ve lost their jobs due to the shutdown can’t repay their loans and that will fuel the rise in bad debt.

However, the spotlight should be on loans to small to medium enterprises (SMEs), according to Citigroup.

“Indeed, anecdotally several banks have noted to us in recent weeks that investors remain fixated on discussing mortgages, while the pain likely resides in the SME book,” said the broker.

Industries most at default risk

The latest data from the Australian Bureau of Statistics showed that around 30% of businesses don’t have cash or access to debt that will allow them to survive for three months.

The types of businesses that are overrepresented in this distressed group include the usual suspects in retail and accommodation and food businesses.

Others in the firing line are “professional, scientific and technical services” and “transport, postal and warehousing”.

Can’t last for 3 months

The other sobering finding from the ABS was that around 70% of businesses impacted by the coronavirus lockdown have suffered a revenue drop of more than 25%. For industries operating on low margins, the decline is enough to push them over – and that may happen when JobKeeper ends in on September 24.

This is a bigger risk to the banks because they are likely to show leniency to mortgage customers in respect to extending loan holidays. But the lenders will only continue to support SMEs that they think can survive the next few months.

The focus is on what new support the government can provide after the wage subsidy ends. The Morrison government ruled out extending JobKeeper but left the door open to supporting specific industries that are hard hit by the virus.

However, Citigroup warned that 57% of SME loans are to industries that are difficult to target in isolation.

First home buyers in the hotseat

Having said all that, mortgage defaults still represent a significant risk to ASX bank investors. But the risk in this area is concentrated on younger first home buyers, according to ANZ’s analysis reported in the Australian Financial Review.

The bank is more worried about this group as they are likely to have entered the market near or at its peak. This means they have taken on more debt and are coming into the crisis with more leverage than others.

The risk of rising unemployment and fact that banks have reached the interest rate floor will make the next two years a challenge.

Let’s also not forget that a big amount of new recent mortgages have gone to this group of homebuyers and that the government’s $25,000 grant could entice even more to jump into the market with their eyes closed.

More reading

• Is it time for a plan B with ASX 200 shares?
• Is CommBank still the best ASX dividend share to buy?
• Saracen Mineral and 2 other companies defying the ASX 200
• Why Domino’s share price is smashing the market
• Down 15% in 2020! Why I like the Domain share price today

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me risk-free on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. 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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The WiseTech Global Ltd (ASX: WTC) share price will be on watch on Tuesday after the logistics solutions company revealed some heavy insider selling.

What did WiseTech Global announce?

This morning WiseTech advised that it has been informed that its founder and CEO, Richard White, has been selling shares on market this month.

According to the release, Mr White has sold a total of 2,445,653 shares over the last few trading days. This represents approximately 0.76% of the total issued capital of WiseTech Global.

The chief executive first offloaded 206,439 shares through on market trades between 22 June and 26 June for an average of $22.02 per share. This works out to be a total consideration of $4,545,786.78.

Mr White then sold a total of 2,245,925 shares (inclusive of indirectly held shares) through an on-market trade on Monday 29 June. These shares were sold at an average of $18.40 per share, which represents a total consideration of $41,325,020.

In total that’s $45,870,806.78 worth of share sales by the chief executive. No reason was given for the sales.

Does the CEO have any shares left?

Despite this sizeable sale of shares, Richard White continues to have voting control over approximately 151 million WiseTech Global shares. This represents approximately 46.9% of the issued capital of WiseTech Global.

The company advises that Mr White has confirmed his commitment to WiseTech Global and his intention to remain a significant shareholder for the very long-term.

What now?

While insider selling rarely goes down well with the market, I wouldn’t be overly concerned with this one.

Firstly, Mr White still has a very large holding, which means his interests are firmly aligned with shareholders.

Secondly, this certainly isn’t a case of an insider selling because a share price has been rocketing higher. The latter sale of shares ($18.40 per share), comes at a 52.5% discount to WiseTech’s 52-week high.

More reading

• ASX 200 drops 1.5% on elevated COVID-19 fears
• 2 ASX tech shares to buy and hold beyond 2025
• ASX 200 Weekly Wrap: ASX back in the green
• ASX 200 finishes higher by 0.8%, Carsales share price driven up by FY20 guidance
• Why I think Xero shares are a great long-term buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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.

The post WiseTech share price on watch after CEO dumps almost $46 million of shares appeared first on Motley Fool Australia.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Microsoft (NASDAQ: MSFT) recently agreed to purchase CyberX, a developer of cybersecurity solutions for the industrial IoT (Internet of Things) market. Microsoft didn’t disclose the value of the deal, but TechCrunch claims it was worth roughly $165 million.

Microsoft will integrate CyberX’s tools, which can digitally map and gather data on thousands of devices in a building, into its broader portfolio of IoT security services. Microsoft claims CyberX provides “a fundamental step to securely enable smart manufacturing, smart grid, and other digitization use cases across production facilities and the supply chain.”

Microsoft claims the acquisition will also strengthen Azure Sentinel, its cloud-native security platform, and complement its other cybersecurity services. On its own, the CyberX acquisition might not seem all that significant for Microsoft, which ended last quarter with $11.7 billion in cash and equivalents. Startup tracker Growjo estimates CyberX only generated about $33.5 million in annual revenue last year — a drop in the ocean compared to Microsoft’s projected revenue of $141.5 billion this year.

But if we track Microsoft’s growing list of cybersecurity investments, we’ll notice it’s gradually becoming a powerhouse in the growing sector. Let’s see why Microsoft is expanding its cybersecurity portfolio, and how it could threaten smaller players in the space.

Microsoft’s cybersecurity and IoT ambitions

Prior to buying CyberX, Microsoft bought security software maker XDegrees in 2002, rootkit security software maker Komoku in 2008, enterprise security firm Aorato in 2014, security firms Adallom and Secure Islands in 2015, and cybersecurity firm Hexadite in 2017. Adallom was its biggest cybersecurity acquisition to date, with a reported value of $320 million.

Those acquisitions buoyed the growth of Microsoft’s paid cybersecurity services, which include tools like Office 365 Security and Azure Security Center. Microsoft also recently expanded its subscription-based Microsoft Defender ATP platform to Macs and Android devices. Microsoft doesn’t disclose its revenue from these services separately.

Two years ago, Microsoft announced it would invest $1 billion annually in its growing cybersecurity ecosystem. That same year, it pledged to invest $5 billion in the IoT market over the following four years.

Its IoT expansion included the introduction of Azure IoT Central, a cloud-based service for monitoring IoT devices; Azure Sphere, an end-to-end IoT product for Linux-based microcontrollers; and Azure IoT Edge, which runs Azure and AI services on the network edge.

Microsoft is expanding its cybersecurity and IoT portfolios for two reasons. First, baking in first-party security services into its broader ecosystem — which includes Windows, Azure, and its other commercial cloud services — tightens its grip on its own software and reduces the need for third-party security software.

Second, expanding its reach across the IoT market with new operating systems (like Windows IoT) and services (like Azure IoT) could expand Microsoft’s reach beyond its mature PC and server markets. Doing so could widen its moat against challengers like SoftBank‘s ARM and tether non-PC devices more tightly to its software ecosystem.

The global IoT market could still grow at a compound annual growth rate of 24.7% between 2019 and 2026, according to Fortune Business Insights. That’s why Microsoft is investing heavily in new IoT platforms and security solutions — it can’t afford to lose this sprawling market as it did with smartphones.

Could Microsoft disrupt the cybersecurity market?

Simply put, Microsoft wants to turn its software platforms into walled gardens that rely less on third-party services, including web browsers, cloud services, and security services.

In this context, Microsoft’s growing interest in the cybersecurity market could be bad news for stand-alone security companies. Microsoft’s acquisition of CyberX, along with its expanding platform of IoT and security services, strongly suggests that it can fully run and secure smart factories without additional third-party services.

Yet we shouldn’t assume companies will eagerly tether themselves to Microsoft’s ecosystem. Other tech giants, like Amazon and Cisco, also offer bundled IoT security solutions — and they still haven’t killed smaller IoT security players like FireEye and Palo Alto Networks, which offer more flexible solutions.

Therefore, Microsoft might be quietly becoming a cybersecurity powerhouse, but there could be plenty of room for all these players to grow without trampling each other.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Microsoft is giving up on retail
• These 2 ASX shares are perfect for a beginner investor
• These are the 4 cheapest ETFs on the ASX
• ASX investors brace to ride the next wave of “irrational exuberance”

Leo Sun owns shares of Amazon and Cisco Systems. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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One of the best investing books I think you can read is Pat Dorsey’s The Little Book That Builds Wealth. The book is an excellent guide to identifying businesses with robust economic moats or competitive advantages.

One of the most powerful moats described in Dorsey’s book is switching costs. These are barriers that make it hard for customers to jump to another competitor.  

The incredible power of switching costs

When was the last time you changed banks?

Most of my banking is through the same bank I’ve been with for the last 30 years! It has become a hub for my money: managing all sorts of arrivals and departures automatically, receiving cash, paying bills and allocating savings. To switch banks would be a huge hassle.

This is great news for my bank! Businesses that can retain customers with switching costs can charge these customers higher fees and earn higher returns without fear of losing customers.

The 3 companies with strong switching cost moats

Accounting platform Xero Limited (ASX: XRO) is a perfect example of a product with high switching costs. Once set up, Xero’s software becomes deeply embedded into the daily operations of the businesses it serves. It becomes a daunting task to consider shifting to a competitor.

This helps to explain why Xero has such good customer retention rates. The number of customers that leave Xero is known as ‘churn’ and in the 12 months to 31 March, 2020 Xero had an average monthly churn of just 1.13%. This strong customer retention gives Xero a pricing power that it can deploy to counter-cost inflation.

A similar example is digital church payment service Pushpay Holdings Ltd (ASX: PPH). Once Pushpay’s church customers are set up with the software, and the congregation has downloaded the app, it is a time-consuming and disruptive process to change to a competing product. PushPay has been growing strongly and has a revenue retention rate of 97.5%.

A different kind of switching cost is possessed by Transurban Group (ASX: TCL), one of the world’s largest toll road operators. In many places that Transurban operates, transport projects’ switching costs come in the form of time and convenience. Sure, you could get to Melbourne airport by avoiding the Citilink M2 toll road. But for many people, the extra 25 minutes of driving is just not worth it to avoid the $5–$10 toll.

Foolish takeaway

Keep an eye out for companies that have high switching costs, hinting that they have strong economic moats. If we can pick up these companies at a reasonable price and add them to our portfolios, the powerful returns they produce offer us a good chance of compounding our wealth handsomely over time.

More reading

• Are you in your 20s? Here’s why I would buy these quality ASX shares
• These are the 3 reasons I own Pushpay shares
• Is the Pushpay share price too high to buy?
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• 10 high quality ASX shares to buy in FY 2021

Regan Pearson owns shares of PUSHPAY FPO NZX and Xero.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX and Xero. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Apple and PUSHPAY FPO NZX. 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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Barring a terrible finish to the month on Tuesday, the Afterpay Ltd (ASX: APT) share price will record a very strong gain in June.

Month to date, the payments company’s shares are up an impressive 20%.

Why is the Afterpay share price surging higher?

Investors have been buying Afterpay’s shares this month following strong updates from its rivals and an equally positive update on its UK business.

In respect to the latter, earlier this month Afterpay revealed that its UK-based Clearpay business now has over 1 million active customers using its platform. This is just one year after launching in the country and makes the Clearpay business one of the largest of its kind in the European market.

The good thing about its increasing customer numbers is that it makes the platform more appealing to merchants. In light of this, it will come as no surprise to learn that Afterpay reported a sizeable increase in merchants on its platform.

There are now more than 1,100 brands and retailers offering, or in the process of offering Clearpay to their customers in the UK. Recent additions include Bare Minerals and ISAWITFIRST. They join the likes of ASOS, Marks & Spencer’s, JD Sports, and Boohoo on its platform.

Positively, I believe the wider adoption by merchants will be supportive of further customer growth in the future, allowing Afterpay to quickly entrench its position.

Another positive was that the company advised that its customer purchasing frequency in the UK is outpacing the United States at the same stage. Afterpay’s UK customers are transacting more than 8 times per year, compared to six times at the same point following its United States launch.

Afterpay co-founder, Nick Molnar, spoke positively about current trading conditions.

He said: “The world and the industry are changing at a rapid pace, and during this challenging time consumers are looking for ways to pay using their own money – instead of turning to expensive loans with interest, fees or revolving debt.”

Is it too late to invest?

I don’t believe it is too late to invest if you’re planning to make a long term investment.

I’m confident Afterpay is on its way to becoming a real force in the payments industry and feel its shares could generate strong returns for investors over the 2020s. Especially if it successfully expands into mainland Europe and Asia.

More reading

• Are you in your 20s? Here’s why I would buy these quality ASX shares
• Invest $50 per day in ASX shares to generate a $50,000 passive income
• A good time to buy Commonwealth Bank shares?
• Could the Afterpay share price really be good value right now?
• Why National Storage shares are a great “set and forget” option for your portfolio

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price is up by 27.4% year to date (YTD). In contrast, the S&P/ASX 200 (INDEXASX: XJO) is down by 11.8% YTD, a difference of almost 40%.

During the past decade, it was one of the fastest-growing companies on the ASX. In fact, an investment at the start of 2010 would have multiplied 13.5 times by now.

Even though it has already seen a lot of growth, I believe the company still has strong growth ahead of it, and below I’ll share why.

Domino’s grew sales by 29.5% in 2019 and it is the leading international franchisee of Domino’s Pizza, Inc. (NYSE: DPZ). Within Australia, it is the largest pizza chain both in terms of network store numbers and network sales. Moreover, the company also holds the exclusive master franchise rights for the Domino’s brand and network in Australia, New Zealand, Belgium, France, Netherlands, Japan, Germany, Luxembourg and Denmark.

Domino’s share price and performance

The company has withdrawn its earnings forecast for the year due to the pandemic. In April the company’s share price started to rise after previously closed stores started to reopen, though the company was quite opaque about revenue and earnings levels. Notably, they advised that Japan and Germany maintained its strong sales performance. They also stated that same-store sales remained consistent for Australia and Europe. 

However, the company continues its medium-term outlook. Its new store openings were +7 to 9% per year, same-store sales were +3 to 6% per year and net capex was $60–100 million per year.

The compound annual growth rate (CARG) for Domino’s sales is 21.9%. In addition, the company has a very strong balance sheet. 

I first became interested in Domino’s as a company around 2016. I started to learn about how the company took notice of its critics and totally reinvented itself from the ground up from 2010. It rebuilt its pizzas, acknowledged the importance of transport, and built a digital e-commerce ordering platform.

The most brazen move by the US parent company was to open a Domino’s in Italy, the ancestral home of pizza!

Foolish takeaway

A company that has the courage to listen to its critics and rebuild itself from the ground up is a company that I am very interested in. The Australian master franchisee has a massive territory with a lot of room left to grow in large European markets. Its financial history tells the story of a company that is well managed and is perpetually on a growth trajectory. I personally think the Domino’s share price is underquoted, even though it is nearing previous high levels. 

More reading

• Down 15% in 2020! Why I like the Domain share price today
• Are these ASX 200 shares dirt cheap right now?
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 drops 1.5% on elevated COVID-19 fears
• The latest ASX recommendation changes by top brokers

Motley Fool contributor Daryl Mather 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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The Domain Holdings Australia Ltd (ASX: DHG) share price has slumped 14.9% lower in 2020 but I think there’s a lot to like about the ASX media share.

What does Domain Holdings do?

Domain is a real estate media and technology services business focused on the Aussie property market.

The group generates significant earnings from its data services and website, domain.com.au. That includes listing fees for Australians looking to list their homes on the group’s flagship website.

Anyone who has even casually looked at buying or renting a home recently has likely looked at Domain. I think that brand strength combined with its position in real estate media and technology makes the Domain share price rather hard to value.

Why I like the Domain share price today

If we compare Domain’s 2020 performance against the S&P/ASX 200 Index (INDEXASX: XJO) then it shows Domain is lagging. The benchmark ASX 200 index has fallen 13.0% which means Domain is behind by 1.9%.

However, compared to ASX media shares like oOh!Media (ASX: OML) and Southern Cross Media Group Ltd (ASX: SXL), Domain is outperforming.

I wouldn’t put Domain in the real estate sector, but the Domain share price is certainly doing better than many Aussie real estate shares.

In terms of competitors, shares in REA Group Limited (ASX: REA) have dipped just 1% this year. That could mean Domain is a relative value buy in the current market.

I think the mix of industries is what makes Domain such an interesting company. I personally think that its 14.9% fall in 2020 may make it a decent bargain for $3.15 per share.

While there is a lot of uncertainty in the Aussie property sector right now, there is also a lot of government support. Listings have surged in the months since March which could be a good sign for Domain’s August earnings result.

Aussies tend to have an obsession with owning residential real estate. That obsession could well see prices be maintained at or near their current levels, particularly with interest rates at all-time lows.

The real test for the real estate market will come in September when government stimulus measures are wound back. That could be a big test for the Domain share price if investors get spooked by fears of a property crash.

In the meantime, the Domain share price is paying a 1.9% dividend yield but are trading at a price to earnings ratio of 48.2 times. That to me says despite its possible relative value it may be pricey compared to long-run ASX averages.

Foolish takeaway

Personally, I do like the look of the Domain share price as a long-term income share. In my view, I think the short to medium term positives outweigh some of the potential headwinds in the long-run.

Nevertheless, I think I’ll be waiting until the group’s August earnings result rather than rolling the dice in the current market.

More reading

• Why Domino’s share price is smashing the market
• Are these ASX 200 shares dirt cheap right now?
• 5 things to watch on the ASX 200 on Tuesday
• Why I would buy PolyNovo and these stellar ASX growth shares
• ASX 200 drops 1.5% on elevated COVID-19 fears

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended oOh!Media Ltd and REA Group 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.

The post Down 15% in 2020! Why I like the Domain share price today appeared first on Motley Fool Australia.

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