Image source: Domino's Pizza
Billionaire investor Bill Ackman’s hedge fund, Pershing Square Capital Management LP, has amassed a 6% stake in Domino’s Pizza Inc (NYSE: DPZ), according to The Wall Street Journal.
During The Wall Street Journal’s Future of Everything Festival on Wednesday, Ackman revealed Pershing Square exited what was once a stake of more than 1% in Starbucks Corporation after the coffee chain’s quick rebound from the pandemic and picked up Domino’s shares following a pullback.
“We sold Starbucks. It got to a price that it was hard to earn the excess return we like to earn,” he said. “The stock just recovered too quickly.”
At the end of 2020, Pershing Square owned more than $1 billion worth of Starbucks, according to CNBC.
After hitting a pandemic era low in March 2020, the Seattle-based coffee chain’s shares came back quickly, finishing the year up more than 20%.
Ackman said he has had his eye on Domino’s for years but was unable to buy shares because it “was never cheap enough.”
Then, in March 2020, the pizza chain’s shares “dropped dramatically in price for reasons we didn’t understand and we were able to swap Starbucks for Domino’s Pizza.”
Pershing Square bought into Domino’s when the shares dipped to about $330, he said.
“We didn’t get as much as we would like, but we own a little under 6%,” said Ackerman, who described Domino’s as one of the “super-durable growth companies.”
The pizza chain, he said, “is a pure franchising company and interestingly they were the first to invest in technology and delivery.” Ackman added that Domino’s is well run and continually growing, and that management knows how to properly allocate capital.
He was drawn to Domino’s in particular because the chain owns its own delivery infrastructure, which means it does not need to rely on third-party services like DoorDash Inc.
"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," Ackman said.
Domino’s is Ackman’s latest investment in the restaurant industry.
Pershing Square’s top holdings at the end of 2020 included Chipotle Mexican Grill and Burger King parent company Restaurant Brands International, according to CNBC.
“We like the restaurant industry. Interestingly, we’ve never lost money investing in a restaurant company,” Ackman said Wednesday. “I think we’ve never not made a lot of money.”
Source: Equities News