Warren Buffett Reduces Apple Holdings and Invests in a Restaurant Stock That Has Surged Over 6,500% Since Its Initial Public Offering

Many people who follow the stock market are aware that Warren Buffett's Berkshire Hathaway has been reducing its overall stock holdings. The most significant reduction has been in Apple. At its peak, Apple accounted for more than 40% of Berkshire's portfolio, but that figure has now dropped to about 22%.

It's important for investors to realize that selling activity doesn't mean Buffett's team has stopped purchasing stocks altogether. A recent notable addition is Domino's Pizza ( DPZ 1.84%). The company's impressive historical performance and compelling value likely influenced this decision, making it worthwhile to examine Domino's business and stock to determine if it suits typical investors.

Berkshire Hathaway and Domino's

Since its 2004 IPO, Domino's has delivered returns exceeding 6,500% when including dividends. While most investors, Berkshire Hathaway included, missed out on much of this growth, Berkshire's recent investment may signal that there is still considerable potential ahead.

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Berkshire began acquiring Domino's shares in the third quarter of 2024 and has increased its stake every quarter since. Currently, the company owns just over 2.6 million shares, representing approximately 7.75% of Domino's total shares outstanding.

Another reason Berkshire may have invested in Domino's is its status as the largest pizza chain worldwide, operating 21,750 stores globally by the end of fiscal Q3. Despite this scale, some may wonder why an investor would choose a pizza business, which is often seen as having few barriers to entry.

Yet, no other pizza company has matched Domino's expansion, and a closer look reveals the competitive advantages that tend to attract investors like Buffett.

Domino's relies heavily on its franchise system, which allows it to open many locations with relatively little capital, taking advantage of its strong brand to drive growth.

In addition, Domino's emphasizes digital ordering, making the process more convenient and optimizing delivery routes for speed. Its streamlined supply chain also helps maintain consistent food quality and pricing across all locations.

Moreover, Domino's adapts its menu to fit local preferences around the world, and new items like parmesan-stuffed crust or expanded customization options help keep customers loyal to the brand.

The financial case for Domino's

Buffett's team was likely attracted by Domino's financial performance as well. With its global reach and established business, Domino's now resembles a value stock.

During the first three quarters of fiscal 2025 (ending Sept. 8), Domino's generated $3.4 billion in revenue, a 4% increase. More notably, its free cash flow jumped 32% year over year to $496 million, thanks to asset gains and reduced capital spending.

This strong free cash flow easily covered the $119 million paid out in dividends during the same period. With a dividend of $6.96 per share, Domino's offers a 1.6% yield, which is higher than the S&P 500 average of 1.2%. The company has also raised its dividend for 13 consecutive years, suggesting that future increases are likely.

Investors should also consider Domino's current valuation. Its price-to-earnings ratio of 25 is below its five-year average of 30. Since the P/E has rarely dropped below 25 since the early 2010s, this suggests Domino's shares are reasonably priced.

Should you follow Berkshire Hathaway into Domino's stock?

Given Domino's current position, following Berkshire Hathaway's lead could be a wise move for investors.

Of course, the stock's 6,500% historical return might make some hesitant, especially considering the fierce competition in the pizza sector.

However, Domino's strong brand, focus on franchising, operational excellence, and efficient supply chain give it a distinct edge. Investors can also benefit from a fair valuation and a dividend yield above the market average.

Ultimately, even if Domino's doesn't seem particularly exciting, the stock is likely to deliver growing dividends and returns that outperform the market over time.