But those same factors help local pizzerias as well. They hold a dominant market-share position, with an estimated 55% of the national market. Because of the advantage of economies of scale, which gives Domino's franchises lower ingredient costs than local eateries, there is plenty of room to expand market share within the U.S. And the rest of the world is still catching on to the delights of pizza to go, which is why Domino's is reinforcing its focus on international expansion. The chain has had some success overseas, with international same-store sales increasing 4.2% in the first quarter and, excluding currency effects, sales abroad jumping 12%. Domino's is running a shareholders' deficit and carries $1.5 billion of debt, rendering its financial position less than appetizing. Management is committed to decreasing leverage, though. In the latest quarter, debt fell by 9.9%. Liquidity is adequate, reflected in a $114 million cash balance. Also, Domino's has been profitable for nine consecutive quarters, so shareholders' deficit will eventually reverse. Its stock has surged 56% in the past 12 months, doubling the gain of the S&P 500 Index. Its beta, or market correlation, of 1.3 accounts for a portion of outperformance, though. Of researchers covering Domino's, four rate its stock "buy" and eight rank it "hold." Citigroup ( C) offers a target of $17.50 and JPMorgan ( JPM) predicts a price of $17, both implying a return of more than 40% in the months ahead. The stock offers a compelling bargain. It trades at a trailing price-to-earnings ratio of 8.2, a price-to-projected-earnings ratio of 8.5 and a price-to-cash-flow ratio of 5.5 -- 88%, 69% and 53% discounts to respective peer averages. These discounts seem illogical when considering that Domino's growth rates and margins are superior to those of competitors.
-- Reported by Jake Lynch in Boston.
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