Hi, can anyone help me assess why Dominos, a star performed over the last 5 years, and just hitting an all time high, has a negative book value?! what's the deal here?
It's a Large Cap maybe with huge debt?
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Sachiv Mehta
5 comments
Jeffvshepherd
Book value is Assets minus Liabilities. So either assets have reduced, liabilities have increased or a combination of the two.
Mike888
I'm guessing your question is less around the calculation of book value, but more about why a stock with a negative book value has a rising share price.
A quick look at the balance sheet will show you that debt has been doubling year on year for the last few years, to the point now whereby it outstrips the company's assets.
The answer to your question probably lies in determining what this debt is, it's not a stock I follow but I am aware historically of some disputes with franchisees, non profitable overseas ventures and I seem to recall an expansion program of restaurants. I would expect all of these to have a cost, and maybe debt has been the vehicle. The market would probably consider the resolution of all these as beneficial to the company, depending upon how the debt has been structured, hence a share price rise.
As I say, it's not a stock I follow so all of this is hypothesis based upon things that have caught my ear, I suggest wading through the RNS's to find your answer. Equally however, with the current coronavirus concerns, restaurants are maybe not a good place to put new money, at least for a little while yet.
Bonitabeach
SMinvest,
Domino's Pizza Inc (NYQ: DPZ) has been consistently buying its own shares back in the market for a number of years using debt to fund the purchases. The price paid for the share exceeds the asset value; which stood at a negative $87.70 per share at the end of 2019.
Outstanding shares declined by 30% between 2014 and 2019, debt increased by 174%. This kind of financial engineering is quite commom in the US market - who knows what happens to the share price when thhe company stops buying its own shares on this massive scale? The management probably take the view that the cash flow supports their actions.
Leverage is great on the way up and hurts badly on the way down.
Bonitabeach
No position.
