Ackman ditched his Starbucks shares for a stake worth nearly $1 billion in this stock. This is why the billionaire investing legend is bullish on the stock now.
Bill Ackman said this week that he has swapped his Starbucks (NASDAQ: SBUX) stake out for another popular consumer name.
Ackman’s Pershing Square has taken a stake worth almost $1 billion in Domino’s Pizza (NYSE: DPZ), or a little under 6% of the pizza chain’s shares. The billionaire investing legend said he bought into the stock when shares dipped to around $330, making it just the latest restaurant chain that the firm has invested in, following stakes in company’s like Chipotle Mexican Grill (NYSE: CMG), McDonald’s (NYSE: MCD), and Burger King-owner Restaurant Brands International (NYSE: QSR).
“We sold Starbucks. It got to a price that it was hard to earn the excess return we like to earn… The stock just recovered too quickly,” Ackman said at The Wall Street Journal’s Future of Everything Festival, adding that Domino’s shares “dropped dramatically in price for reasons we didn’t understand and we we’re able to swap Starbucks for Domino’s Pizza.”
“We like the restaurant industry,” Ackman said. “Interestingly, we’ve never lost money investing in a restaurant company. I think we’ve never not made a lot of money.”
Domino’s business got a boost from the pandemic as people stuck at home craved the comfort of pizza delivered to their homes, and the stock is up more than 53% since its March 2020 bottom.
One reason Ackman is bullish on Domino’s in particular is that the company owns its own delivery infrastructure, which means it doesn’t need to rely on services like DoorDash or Uber Eats.
“Domino’s is a pure franchising company and interestingly they were the first to invest in technology and delivery,” Ackman said. “They own their delivery infrastructure and they don’t need to rely on the DoorDashes of the world.”
“That is an important competitive advantage in a world where you want to deliver pizza for $7.99. It’s hard to do that with a delivery service taking a massive cut of the proceeds,” he said, adding that Domino’s was the “first and best in terms of delivery technology.”
Ackman acknowledged the bear case for Domino’s is that it has benefitted from dine-in restrictions amid the pandemic. As dine-in restrictions ease across the country, delivery-heavy chains like Domino’s have largely been expected to see their strong sales of the last year begin to taper off.
But that’s hasn’t played out. Domino’s reported its revenue rose 13% year-over-year last quarter to $983.7 million, lapping last year’s pandemic bump. And Ackman said he doesn’t believe restaurants reopening, as well as more competition for delivery, will dent Domino’s.
“Ultimately, our view was actually a lot of negative during the COVID environment. There weren’t football games where you invited over 12 of your buddies and ordered Domino’s,” Ackman said. “There weren’t college campuses in session. Our view is there will be continued growth in that business.”