Domino's Pizza (DPZ) vs. Chuy's (CHUY) - Buy, Hold or Sell

The restaurant industry anticipates exciting prospects this year and beyond, marked by emerging trends and innovative strategies to cater to evolving customer preferences. In this context, I've evaluated two restaurant stocks, Domino's Pizza, Inc. (DPZ) and Chuy's Holdings, Inc. (CHUY), to ascertain which restaurant stock could be a better buy today.

Before delving into the aforementioned stocks, let's delve into the factors propelling growth in the restaurant industry.

The restaurant industry has benefitted from a heightened yearning for human connection after a three-year hiatus from in-person gatherings. According to the National Restaurant Association (NRA), 84% of consumers believe in venturing out to restaurants to enrich their leisure moments.

Rapid urbanization is also fueling a growing demographic of busy professionals seeking swift and convenient dining options. In August, preliminary data from the U.S. Census Bureau revealed that eating and drinking establishments generated $90.80 billion in sales, seasonally adjusted, underscoring the demand for such services.

The industry further anticipates a significant upswing driven by the integration of smart technology solutions. Innovations such as smart tables, which facilitate food ordering and bill payment, along with AI-powered chatbots capable of answering inquiries and offering recommendations, are poised to reshape the restaurant landscape profoundly.

Moreover, innovative restaurant concepts are pushing the industry's boundaries to new heights. Yelp's 2023 State of the Restaurant Industry Report unveils a 105% increase in new pop-up eateries between April 2022 and March 2023. These statistics underscore the industry's dynamic nature and the growing appeal of distinctive dining experiences.

As per future market insights, the full-service restaurant market will be worth $1.51 trillion in 2023. Moreover, it is expected to grow at a CAGR of 2.5%, rising to $1.93 trillion by 2033.

In terms of price performance, DPZ has gained 17% in the past three months, while CHUY plunged by 12% during the same period. Moreover, over the past six months, DPZ witnessed an 18% surge, while CHUY gained 2.2% over the same duration.

However, DPZ gained 21% over the past year, closing the last trading session at $380.21, whereas CHUY jumped by 53.6% during the same period, reaching a closing price of $35.58 in the last trading session.

But which Restaurants stock could be a better pick? Let’s find out.

Recent Financial Results

For the second quarter that ended June 18, 2023, DPZ’s total revenues decreased 3.8% year-over-year to $1.02 billion. However, the company’s gross margin grew 4.8% from the year-ago value to $404.66 million. Also, its net income and EPS stood at $109.38 million and $3.08, up 6.7% and 9.2% year-over-year, respectively.

For the second quarter that ended June 25, 2023, CHUY’s revenue increased 7.3% year-over-year to $119 million. Its income from operations rose 36.1% from the year-ago value to $11.69 million. Also, the company’s adjusted net income and adjusted net income per common share grew 31.6% and 38.6% from the prior year’s quarter to $11.11 million and $0.61, respectively.

Past and Expected Financial Performance

Over the past three years, DPZ’s revenue and EBITDA increased at a CAGR of 6.2% and 6.5%, respectively. During the same period, the company’s net income and EPS grew at respective CAGRs of 1.2% and 5.7%.

Analysts expect DPZ’s revenue to decline marginally year-over-year to $4.53 billion for the fiscal year ending December 2023. However, the company’s EPS for the current year is estimated to rise 9.2% from the prior year’s period to $13.68. Also, DPZ missed its consensus revenue estimates in three of the four trailing quarters, which is disappointing.

Over the past three years, CHUY’s revenue and EBITDA rose at CAGRs of 6% and 19.3%, respectively. In addition, its normalized net income and levered free cash flow surged at a CAGR of 52.6% and 6.1%, respectively, over the same period.

The consensus revenue estimate of $461.90 million for the fiscal year ending December 2023 reflects a 9.4% year-over-year improvement. Likewise, the company’s EPS for the ongoing year is estimated to come in at $1.84, up 34.6% from the previous year. Moreover, it surpassed the consensus revenue and EPS estimates in all four trailing four quarters, which is impressive.

Valuation

In terms of forward P/E, DPZ is currently trading at 27.68x, 43.7% higher than CHUY, which is trading at 19.26x. Moreover, DPZ’s forward EV/Sales multiple of 4.08 is 151.9% higher than CHUY’s 1.62x. In addition, DPZ’s forward EV/EBITDA of 20.48x compares with CHUY’s 13.10x.

Profitability

DPZ’s trailing-12-month revenue is 10.2 times that of what CHUY generates. DPZ’s trailing-12-month gross profit margin of 26.43%, compared to CHUY’s 20.46%. Moreover, DPZ has a trailing-12-month cash from operations of $564.19 million compared to CHUY’s $49.96 million.

Additionally, DPZ’s trailing-12-month EBITDA margin and net income margin are 18.93% and 10.49%, respectively, compared to CHUY’s EBITDA margin of 11.69% and net income margin of 5.97%.

POWR Ratings

DPZ has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, CHUY has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DPZ has a D grade for Value, justified by its higher-than-industry valuation. In terms of forward Price/Sales and forward non-GAAP PEG, DPZ is trading at 2.94x and 2.36x, 260.1% and 77.8% higher than the industry averages of 0.82x and 1.33x, respectively.

On the other hand, CHUY has a C grade for Value, in sync with its mixed valuation. In terms of forward Price/Sales, it is trading at 1.36x, 66.2% higher than the industry average of 0.82x. However, the stock’s forward non-GAAP PEG of 1.19x is 10.3% lower than the 1.33x industry average.

Of the 44 stocks in the B-rated Restaurants industry, DPZ is ranked #30, while CHUY is ranked #6. 

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Quality, and Sentiment. Click here to view DPZ’s ratings. Get all CHUY ratings here.

The Winner

Prominent restaurant stocks DPZ and CHUY stand poised to seize opportunities within the restaurant industry's resurgence, driven by pent-up dining demand, smart technology integration, and innovative culinary concepts.

Nevertheless, taking into account CHUY's superior financial performance, more attractive valuation, and stronger historical growth, it may represent a more favorable investment option than DPZ presently. However, it might be prudent to await a more opportune entry point for DPZ.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Restaurants industry here.

What To Do Next?

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DPZ shares were trading at $382.81 per share on Thursday afternoon, up $2.60 (+0.68%). Year-to-date, DPZ has gained 11.74%, versus a 13.66% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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