Does Starbucks (SBUX) or Domino's (DPUKY) Offer More Growth Potential to Investors?

With solid consumer spending, rapid globalization, technological advancements, and the rising prevalence of home deliveries, the restaurant industry is well-poised to experience significant growth. According to the National Restaurant Association 2024 report, restaurant sales are expected to exceed $1.1 trillion this year, marking a new milestone.

Further, the global online food delivery market reported an impressive valuation of $569.10 billion last year and is expected to grow at a CAGR of 4.3% during the forecast period (2024-2028). A surge in the adoption of technology and evolving consumer preferences will fuel the market expansion.

Besides, Artificial Intelligence (AI) is emerging as a transformative force in the restaurant industry, enhancing operational efficiency and reshaping customer interactions. The technology is elevating customer experience and streamlining workflows. Also, the restaurant AI market is expected to surge to $49 billion over the next five years.

Given this backdrop, let’s compare two Restaurants stocks, Starbucks Corporation (SBUX) and Domino's Pizza Group plc (DPUKY), to understand which stock will perform better in May.

The Case for Starbucks Corporation Stock

With a $82.81 billion market cap, Starbucks Corporation (SBUX) operates as a roaster, marketer, and retailer of coffee globally. Its three segments include North America; International; and Channel Development. The company’s stores offer coffee and tea beverages, roasted whole beans and ground coffees, single-serve products, and ready-to-drink beverages.

SBUX’s stock declined 18.2% over the past month to close the last trading session at $73.11.

In terms of forward non-GAAP P/E, SBUX is trading at 20.16x, 31.5% higher than the industry average of 15.33x. Likewise, the stock’s forward EV/EBITDA of 14.26x is 51.8% higher than the industry average of 9.40x. Also, its forward Price/Sales of 2.24x is considerably higher than the 0.88x industry average.

SBUX’s trailing-12-month EBIT margin and net income margin of 15.31% and 11.38% are 100.1% and 143.4% higher than the respective industry averages of 7.65% and 4.68%, respectively. However, its trailing-12-month gross profit margin of 27.74 is 23.6% lower than the industry average of 36.30%.

In the second quarter that ended March 31, 2024, SBUX reported net revenues of $8.56 billion, of which its revenue from company-operated stores was $7.05 billion. Net earnings attributable to Starbucks came in at $772.40 million and $0.68 per common share, down 15% and 13.9% year-over-year, respectively.

Furthermore, as of March 31, 2024, the company’s total cash and cash equivalents and current assets totaled $2.76 billion and $6.46 billion, respectively.

Street expects SBUX’s revenue and EPS for the fourth quarter (ending September 2024) to increase 2.9% and 0.8% year-over-year to $9.65 billion and $1.07, respectively. However, the company missed the consensus revenue estimates in three of the trailing four quarters.

SBUX’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a C grade for Value, Momentum, and Stability. In the Restaurants industry, SBUX is ranked #28 among 42 stocks.

To check additional POWR Ratings for Growth, Sentiment, and Quality of SBUX, click here.

The Case for Domino's Pizza Group plc Stock

Domino's Pizza Group plc (DPUKY) is headquartered in Milton Keynes, the United Kingdom, and owns, operates, and franchises Domino's Pizza stores. The company operates stores in the United Kingdom and the Republic of Ireland and leases its stores. Its market capitalization currently stands at $1.57 billion.

DPUKY’s stock has surged 9.6% over the past year to close the last trading session at $8.03.

According to the trading update for the first quarter of fiscal 2024, DPUKY’s like-for-like sales on a 2-year basis are up 8.4%. The company opened 14 new stores compared to 15 in the previous year. Further, 38 stores in construction or planning were approved, expected to open in excess of 70 stores in the fiscal year 2024.

In terms of trailing-12-month P/E, DPUKY is trading at 11.07x, 36.5% lower than the industry average of 17.45x. Likewise, the stock’s trailing-12-month PEG of 0.23x is 58.5% lower than the 0.54x industry average.

DPUKY’s trailing-12-month gross profit margin and EBIT margin of 46.51% and 16.46% are 28.1% and 115.2% higher than the respective industry averages of 36.30% and 7.65%. Similarly, the stock’s trailing-12-month net income margin of 16.92% is significantly higher than the industry average of 4.68%.

During the fiscal year that ended December 31, 2023, DPUKY’s group revenue increased 13.2% year-over-year to £679.80 million ($852.88 million). Its underlying EBIT grew 5.8% from the prior year to £116.20 million ($145.78 million). The company’s underlying profit after tax and EPS came in at £75.70 million ($94.97 million) and 18 pence, respectively.

DPUKY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

The stock has an A grade for Stability and a B for Quality. DPUKY is ranked #3 among 42 stocks in the Restaurants industry.

In addition to the POWR Ratings I’ve just highlighted, you can see DPUKY’s ratings for Sentiment, Growth, Value, and Momentum here.

Does Starbucks (SBUX) or Domino's (DPUKY) Offer More Growth Potential to Investors?

The restaurant industry is well-positioned for robust growth thanks to the surging consumer demand for dine-ins and home deliveries, technological advancements, and diverse culinary offerings catering to evolving consumer preferences. Both SBUX and DPUKY stand to capitalize on these favorable industry trends.

However, given solid financials, high profitability, and an optimistic near-term outlook, DPUKY is a better stock pick than its rival SBUX.

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

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SBUX shares were trading at $73.64 per share on Monday morning, up $0.53 (+0.72%). Year-to-date, SBUX has declined -22.84%, versus a 8.53% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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