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One penny inventory that’s caught my eye lately is DP Poland (LSE: DPP). It operates the Domino’s Pizza chain in Poland and Croatia.
Is it value shopping for just a few shares for my Shares and Shares ISA portfolio on the present worth of 11p? Let’s focus on.
The bull case
There are a number of causes this inventory’s caught my consideration. One’s that the corporate’s revenues are surging proper now.
For the primary half of 2024, group income got here in at £26.4m, up a whopping 26% yr on yr. And this was regardless of the deliberate closure of 5 shops in the course of the interval. So clearly demand for the corporate’s pizzas is excessive for the time being.
One other is that the group’s engaged in an aggressive retailer rollout. In Poland, seven shops have already opened this yr and 9 extra ones are on observe to be accomplished by the tip of 2024. In the meantime, in the long run, DP Poland plans to open a whole bunch extra shops throughout Poland and Croatia (it has 111 now). So we may very well be taking a look at an enormous long-term progress story right here.
Moreover, the corporate’s pivoting to a franchise mannequin. These will be very worthwhile for companies because the franchisor usually receives each an preliminary start-up price and annual licensing charges from franchisees. It’s value noting right here that Domino’s Pizza within the UK operates a franchise mannequin. And this firm’s been an unimaginable funding in the long term, turning £2k into practically £40k over the past 20 years.
Lastly, administration seems to be very assured concerning the future. “I remain very optimistic about the outlook and excited by our prospects. The Group continues to demonstrate what can be achieved in its owned stores, and the planned transition to a franchisee model will accelerate growth and increase return on capital,” mentioned CEO Nils Gornall (who has greater than 30 years’ expertise with Domino’s) within the firm’s H1 outcomes.
Total, the corporate seems to have rather a lot going for it from an funding perspective.
The bear case
After all, there are just a few dangers right here. For a begin, the group isn’t making any cash for the time being. For the primary half of 2024, it generated a lack of £496m. Typically talking, I are likely to keep away from loss-making firms when investing as their share costs will be very unstable. Nevertheless, losses listed here are coming down (the loss in H1 2023 was £1,592m).
One other threat is that the corporate might have to lift capital sooner or later (as a result of it’s not making any cash). Earlier this yr, it raised about £20m to speed up its progress technique. If it was to lift capital once more, its share worth would most definitely fall. That’s as a result of current buyers’ holdings could be diluted.
It’s additionally value noting that buyers’ tastes and preferences might change sooner or later. Right now, lots of people love Domino’s pizza. However as wholesome meals turns into extra of a spotlight, the corporate’s merchandise might lose their enchantment. Customers might additionally shift in the direction of artisan pizzas.
Ought to I purchase?
Weighing all the things up, I’m going to maintain DP Poland shares on my watchlist for now. I may very well be tempted to purchase this penny inventory sooner or later, however given the dearth of profitability, there are just a few different shares I see as extra enticing.
