Most industries tend to start with a large number of companies competing for market share. Over time, companies that can carve out a successful niche can grow their market share. Eventually, only a few players will remain.
When a sector settles down to a few oligopoly players, profits tend to be steady. And investors in those companies tend to fare well over time. It doesn’t matter if it’s in software, credit cards, or consumer brands.
One sector with an oligopoly is the restaurant industry. Small mom and pop players abound, but many big chains and restaurant types have a few big players. One such niche is the pizza industry. And while it comes as a big surprise, Domino’s Pizza (DPZ) may be a winner here.
That’s because Domino’s is the latest company to join the stock portfolio of Berkshire Hathaway (BRK-B).
Amid a tough year for consumer spending, Domino’s has held up well, growing revenues by 3%, and earnings by a much more impressive 22%. And with a 12% profit margin, it’s faring better than the restaurant sector as a whole.
Action to take: Investors may like shares here. The stock is coming off a multi-month low, and the Berkshire buy may push shares higher in the months ahead. Plus, at current prices, Domino’s pays a 1.4% dividend.
For traders, the January 2025 $470 calls, last trading for about $7.00, could see mid-double-digit returns in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.