Legendary investor Warren Buffett likes concentrating on corporations that profit from robust manufacturers, enduring client demand and a confirmed aggressive edge. So I used to be not stunned to listen to that the ‘Sage of Omaha’ has not too long ago purchased into New York-listed Domino’s Pizza.

However an alternate technique to put money into the corporate could be for me to purchase shares in FTSE 250 share Domino’s Pizza Group (LSE: DOM). One other London-listed different, DP Eurasia, was taken personal this 12 months.

Clearly, Domino’s is quite a extra advanced firm than it could initially seem. Just like the long-term Buffett holding Coca-Cola, that is mainly a grasp franchisor firm. It owns mental property rights, runs outlets in some areas, and a collection of world franchisees that then sub-franchise inside their areas.

The FTSE 250 agency is the corporate that runs the UK and Republic of Eire enterprise. So it sits between the last word international franchisor Domino’s (what Buffett has purchased into) and particular person franchisees that will choose up the telephone while you name your native Domino’s department with the munchies for a Margherita.

Is that this enterprise to put money into?

Some buyers instantly take fright once they hear phrases like franchising or licensing. However Domino’s has outpaced the FTSE 250 over the previous 5 years, rising 15% when the index throughout the identical interval has been flat. It yields 3.2% too.

What I see because the draw back of its piggy-in-the-middle function is a scarcity of management. It depends on the US mother or father for the last word route of the model and advertising messages. Nevertheless it additionally depends on particular person franchisees to ship the top product and handle particular person buyer relationships.

It tries to mitigate that by proudly owning some operational websites itself, however that brings the extra complication of operating pizza outlets on prime of supporting them with issues like a provide chain and promotional materials.

Not an inexpensive meal

In the mean time, the FTSE 250 trades on a price-to-earnings (P/E) ratio of 18. That’s markedly cheaper than the US enterprise’s P/E ratio of 27, however I don’t see it as low-cost.

Earnings per share have been falling over the previous a number of years. The corporate additionally faces the danger {that a} weak British financial system and tightening family spending may see demand for pizzas fall. Within the first half, orders have been 1% decrease than in the identical interval final 12 months. Income fell 2%, whereas fundamental earnings per share crashed 45%.

The third quarter was extra encouraging, with complete orders up 4% year-on-year. With an ongoing push for purchasers to make use of its app and continued retailer openings, the corporate hopes to take care of that momentum.

Nonetheless, I see the FTSE 250 share as totally priced given the combined efficiency of latest years, a sluggish begin to 2024 and an unsure outlook for client spending.

I’ve no plans so as to add it to my portfolio in the intervening time.