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Is Domino’s Pizza, Inc. (DPZ) A Good Stock To Buy?

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At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not Domino's Pizza, Inc. (NYSE:DPZ) makes for a good investment right now.

Is DPZ a good stock to buy? Domino's Pizza, Inc. (NYSE:DPZ) was in 31 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 47. DPZ has experienced an increase in hedge fund interest lately. There were 29 hedge funds in our database with DPZ holdings at the end of March. Our calculations also showed that DPZ isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

If you'd ask most investors, hedge funds are viewed as underperforming, old investment vehicles of yesteryear. While there are over 8000 funds trading at present, Our experts choose to focus on the bigwigs of this group, approximately 850 funds. It is estimated that this group of investors manage most of the smart money's total asset base, and by keeping track of their highest performing picks, Insider Monkey has found a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Can hedge funds beat the market
Can hedge funds beat the market

Bill Ackman of Pershing Square

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to take a gander at the new hedge fund action regarding Domino's Pizza, Inc. (NYSE:DPZ).

Do Hedge Funds Think DPZ Is A Good Stock To Buy Now?

At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DPZ over the last 24 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Pershing Square held the most valuable stake in Domino's Pizza, Inc. (NYSE:DPZ), which was worth $951.3 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $572.9 million worth of shares. Melvin Capital Management, Fisher Asset Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Domino's Pizza, Inc. (NYSE:DPZ), around 8.88% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, earmarking 2.02 percent of its 13F equity portfolio to DPZ.

Now, some big names have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, assembled the largest position in Domino's Pizza, Inc. (NYSE:DPZ). Melvin Capital Management had $244.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $44.4 million position during the quarter. The other funds with brand new DPZ positions are Phill Gross and Robert Atchinson's Adage Capital Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Domino's Pizza, Inc. (NYSE:DPZ) but similarly valued. We will take a look at NVR, Inc. (NYSE:NVR), Healthpeak Properties, Inc. (NYSE:PEAK), Bentley Systems, Incorporated (NASDAQ:BSY), Boston Properties, Inc. (NYSE:BXP), Farfetch Limited (NYSE:FTCH), Affirm Holdings, Inc. (NASDAQ:AFRM), and Raymond James Financial, Inc. (NYSE:RJF). This group of stocks' market values are similar to DPZ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVR,28,1093288,-11 PEAK,22,119796,4 BSY,17,81427,-5 BXP,19,1397759,-8 FTCH,63,4253088,6 AFRM,25,823640,-7 RJF,29,662093,-4 Average,29,1204442,-3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1204 million. That figure was $2495 million in DPZ's case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Bentley Systems, Incorporated (NASDAQ:BSY) is the least popular one with only 17 bullish hedge fund positions. Domino's Pizza, Inc. (NYSE:DPZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DPZ is 42. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately DPZ wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DPZ were disappointed as the stock returned -2.3% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.