Warren Buffett Sells Apple Stock and Buys a Restaurant Stock Up Over 6,500% Since Its IPO

Berkshire Hathaway has notably increased its stake in Domino's Pizza (DPZ) since Q3 2024, now holding 7.75% of outstanding shares, indicating a strategic investment in the global pizza chain. This move is supported by Domino's competitive advantages, including its scalable franchise model, digital-first approach, and efficient supply chain, which contributed to a 32% surge in free cash flow to $496 million in the first nine months of fiscal 2025. With a P/E ratio of 25, below its five-year average, and an above-average 1.6% dividend yield backed by 13 years of payout hikes, Domino's presents a compelling value proposition for institutional investors despite its competitive industry.

Analysis

Berkshire Hathaway significantly increased its stake in Domino's Pizza (DPZ) since Q3 2024, now holding 7.75% of outstanding shares, signaling a strategic investment despite being a net seller of other equities. This move highlights Domino's market dominance as the world's largest pizza chain with 21,750 global locations.

Domino's demonstrated robust financial health in the first nine months of fiscal 2025, with revenue growing 4% to $3.4 billion and free cash flow surging 32% to $496 million. This strong performance, which comfortably covered $119 million in dividend costs, is driven by its scalable franchise model, digital-first approach, and efficient supply chain.

The stock presents a compelling valuation with a P/E ratio of 25, below its five-year average of 30, suggesting a reasonable entry point. Domino's also offers an attractive 1.6% dividend yield, exceeding the S&P 500's 1.2% average, supported by a 13-year history of consistent payout increases.

Despite the generally bullish sentiment and Berkshire's endorsement, The Motley Fool Stock Advisor team did not include Domino's Pizza in their top 10 recommended stocks, indicating a divergence in expert opinion that warrants consideration.

Key Decisions for Investors

• Investors should consider a long position in DPZ, aligning with Berkshire Hathaway's strategic investment, given its robust free cash flow growth, attractive valuation metrics, and consistent dividend increases.
• Monitor Domino's ability to sustain its competitive advantages, such as its franchise model and digital strategy, against potential industry disruption and competitive pressures, especially given the 'low barriers to entry' mentioned.
• Evaluate the long-term sustainability of dividend growth, supported by the company's strong FCF generation and 13-year history of payout hikes, as a key component of total shareholder return.