Remember when Domino’s Pizza, Inc. (NYSE:DPZ) was just kind of the default lousy pizza place you got delivery from during the football game?   The truth was that the pizza was really not terribly good. Nevertheless, people seemed to order it because it was convenient.

Then, around 2010 or 2011, DPZ started airing these commercials in which focus groups would sample the pizza and report that it tasted like cardboard. DPZ management used this as a way to reboot its brand by reformulating the pizza recipe.

Pizza Reboot

And everything changed.

Since January 1, 2011, DPZ stock has returned 1,250% compared to 114% for the SPDR S&P 500 Shares (NYSE:SPY).

I guess people liked the new recipe.

Today, DPZ stock continues to soar on the backs of its 14,400 stores and solid same-store comps. DPZ stock reported earnings on Tuesday and they were pretty darn great.

Earnings and Comps Look Strong

Domestic comps grew 4.2% and a tremendous 7.7% for the full year. Let’s stop here. The 4.2% number is what I consider to be “robust” for a restaurant. I would be happy with 2-3% usually. However, that 7.7% number is simply outstanding — for any business. For a restaurant, it’s out of this world.

People aren’t just repeatedly ordering from Domino’s, more and more people are, and DPZ stock benefits from pricing power.

Now, why are people headed towards Domino’s pizza at increasing rates like this? Obviously, things like location, convenience, and quality matter.

In-Home Entertainment Fueling DPZ Stock Growth

But I also think — believe it or not — that Netflix, Inc. (NASDAQ:NFLX), and what it represents, is making a difference. People are staying home and entertaining themselves differently. People are binge-watching shows. Movie admissions have declined dramatically.

When you look at the numbers from online delivery companies, their data supports this premise as well.

The other reason is that Domino’s is close to becoming the default name in pizza. The pizza delivery market is heavily fragmented between big chains like DPZ and its peers — and local chains and mom-and-pop stores. Just like “I’m going to Uber to the show tonight” demonstrates how Uber has become a verb, when it’s time to order in, people often just say, “Domino’s.”

Meanwhile, international numbers are good as well, with same store sales growth of 2.5% for the quarter and 3.4% for the year. DPZ stock is now supported with 1,045 net new stores, of which, 80% were opened internationally.

Final Thoughts on Domino’s Stock

At the bottom line, the numbers are stellar. Q4 earnings per share was $2.09, up 41%. For the year, diluted EPS was $5.91, up 37%. The net income increases resulted from high royalties as well as volume. Again, the other great thing about DPZ stock is that it derives tons of revenue from franchising.

I don’t like management spending money on 937,000 shares in repurchased stock at these prices. I don’t like that the Board authorized $750 million to repurchase more shares. I do like the 20% dividend increase, though.

I love the $249 million in free cash flow for the year.

Domino’s stock generated $278 million in net income this year. The market cap is $9.7 billion, so DPZ stock trades at 35 times net income. Hey, if DPZ is growing net income at a 37% rate, then DPZ stock is arguably fairly priced.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.