A couple of years’ ago I would have cited Domino’s Pizza (DOM) as an example of an outstanding business, albeit with an expensive valuation attached. I used the company extensively in my book, How to Pick Quality Shares, to illustrate the financial characteristics of a high-quality business.
Many of those characteristics – high profit margins, high ROCE (return on capital employed) and good cash conversion – remain, but Domino’s is now having to work hard to convince investors that its business model and growth prospects are robust enough. Judging by its share price performance over the past year, it would seem that the company has not been convincing enough.