In November, Buffett's company $Berkshire Hathaway-A(BRK.A.US)$ announced its third-quarter Hold Positions. According to the company's Form 13F filed with regulators, $Domino's Pizza(DPZ.US)$ Domino's Pizza became a major new stock in that quarter. Berkshire holds 1.28 million shares of Domino's Pizza stock, valued at approximately 0.55 billion dollars.

Domino's Pizza has numerous branches worldwide and is one of the well-known brands in the fast-food Industry. The company went public on the NYSE in 2004 and has performed exceptionally well historically. $Alphabet-A(GOOGL.US)$ also went public in the same year, with total returns that are neck and neck.

However, in 2024, the company's stock price underperformed the market, especially after the second quarter, experiencing a drop of nearly a quarter at one point. As of the close on November 18, Domino's Pizza's Market Cap is still approximately 15 billion dollars.

How is Domino's operational status? What considerations might Berkshire have for opening positions? And is it wise to 'copy homework' based on the holdings of these big players?

Let's dive into this week's 【Opportunity Express】.

Sales growth is slowing.

In July, Domino's Pizza released its second quarter report. Although the performance met expectations, it provided an optimistic guidance. Management forecasts that same-store sales will slow and has decided to suspend the goal of adding 1,100 new stores globally by 2028. The company's stock fell nearly 15% on the same day the quarterly report was released.

In the third quarter, Domino's Pizza continued to face pressure on revenue. The third quarter report released in October showed that the growth rate of international same-store sales for Domino's was 0.8%, while the market consensus expectation was 2.9%; same-store sales in the United States grew by 3%, slightly below the expected 3.6%. Management also continued to lower the annual sales growth target from 7% to 6%. In the 10 years before 2023, Domino's was able to maintain growth of over 10% annually.

This is mainly due to the persistently high inflation altering consumer habits. According to a survey conducted by Lending Tree this year, 78% of respondents believe that fast food has become a 'Luxury Good.' Driven by rising supply chain costs, menu prices have increased significantly, leading more consumers to choose dining at home. Carnegie Investment stated that fast food prices no longer have appeal, forcing consumers to turn to chain supermarkets and grocery stores.

During the third quarter earnings call, Domino's management stated that they are aware of the pressure on consumer spending and have taken a more aggressive pricing strategy. Domino's has increased promotions and discounts and updated the customer loyalty program to offer more frequent rewards at lower prices. Domino's has also begun to collaborate with Uber Eats to expand sales through the delivery channel.

What is the reason for the action?

Due to the impact of the macro environment, Domino's growth plans have encountered obstacles. However, compared with many of its peers in the fast food industry, Domino's performance is still regarded as decent.

According to Barron's, $McDonald's(MCD.US)$ and $Starbucks(SBUX.US)$ As major chains have reported weak sales, many restaurants have been forced to engage in price wars to win back customers. Many peers have already experienced negative same-store sales growth, while Domino's Pizza has only slowed down and is still in the process of expansion.

In the report released in November, investment institution Oppenheimer named Domino's Pizza as a top pick in the restaurant industry. Analysts believe the company is expected to achieve strong share growth by 2025, and the current industry conditions are very favorable for Domino's Pizza to surpass its competitors. By increasing promotional efforts and expanding delivery partners, sales are expected to return to a growth trajectory.

MorningStar stated that Domino's Pizza is a company with a wide economic moat, led by excellent management. It has historically provided substantial returns to investors through superior same-store growth and a rapid internationalization strategy.

From a technical perspective, Domino's Pizza's stock price has been in an upward channel from October last year to the second quarter of this year, just a step away from a historical high. However, a significant correction occurred later, and in recent months, it has remained in a horizontal range. Investors can pay attention to whether the stock price can effectively break through the 445 line, which is the upper boundary of the current level channel, as this could lead to further development in the market.

Data source: Futubull. Data as of the close on November 18, 2024. The case is for illustrative purposes only and does not constitute any investment advice or guarantee. Past performance does not indicate future results, and the market carries risks; investment should be done cautiously.

Is it necessarily good to "copy homework"?

After Berkshire's holdings were disclosed, we often see headlines like "Buffett's new position in XX stocks," but this is not entirely accurate. Berkshire also has two managers managing portfolios: Ted Weschler and Todd Combs. Generally, smaller positions below one billion dollars are often their contributions, rather than operations by Buffett himself.

The Form 13F shows that Berkshire has new investments in the second quarter. $Ulta Beauty(ULTA.US)$ In the third quarter, most were completely sold off, a situation that has often occurred before. Since Buffett has long been known for his long-term value investing, it has raised doubts among investors. Berkshire's Hold Positions in ULTA in the second quarter were less than 0.3 billion USD, likely from the operations of the two investment managers mentioned above.

Buffett stated long ago that he would not interfere with the investments of the two. "I may not know they are buying it until a month after they start purchasing it."

Some investors choose to mimic the Hold Positions disclosed in the Form 13F to build their own portfolios, but this "Piggyback Investment" approach carries certain risks.

First, the disclosure of the Form 13F has a time lag. For example, we may not see Berkshire's Hold Positions as of the end of the third quarter until November. In this time, the portfolio may have already changed. Additionally, the Form 13F only discloses long positions, and does not cover short positions, options, or other derivatives. The risk tolerance and objectives of large investment firms differ from those of individual investors.

The CFA Institute has tracked the performance of "Piggyback Portfolios" over a ten-year period, finding these portfolios to have greater volatility than the market, and they do not provide significant appreciation relative to the market.

Buffett himself has publicly stated that investors should not rely on Berkshire's investment choices or mimic other financiers' positions to get rich. "If they want to do what Berkshire does, they can buy shares of Berkshire directly," said the "Oracle of Omaha" in 2016.

Risk Disclosure: This content does not constitute a research report, is for reference only, and should not be used as the basis for any investment decision. The information contained herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of information are considered reliable, the accuracy or completeness of the above content is not guaranteed. Furthermore, there is no guarantee regarding the accuracy of any statements, viewpoints, or forecasts provided in this article.