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Domino’s Pizza

DOMINO'S PIZZA NEW LOGOYear-to-date gains: 52%

Ever since Domino’s Pizza (DPZ) completely overhauled its offerings recently, the company has been on a roll. Last year, the pizza chain posted record profitability — good news considering sales have been climbing as well.

In the most recent quarter, DPZ profit rose 18%, while sales gained 10% and same-store sales jumped 7% in the U.S. and 6% abroad. That trend is expected to continue as well; current quarter earnings are slated to increase 21%, next quarter should enjoy a gain of 17%, while the total year should improve 20%.

And those estimates just may be too low, considering the stock has beat expectations for the last four quarters.

The two red flags: The company’s operating cash flow has taken a dramatic hit, sliding from $43 million as of last September to just $19 million in most recent quarter. On top of that, the stock does look a tad frothy, trading at 24 times expected 2014 earnings vs. projected five-year annualized earnings growth of just 14%.

Still, I would be less worried about a big-time sell-off here than I would with Wendy’s. That multiple is only slightly higher than rivals like Papa Johns (PZZA)  or even Yum, which each go for 20 times forward earnings. Meanwhile, Wendy’s boasts a much more significant premium than its peers.

It may not be the time to buy DPZ, but I wouldn’t have a problem holding if you’re already in.

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