I had a classmate in grad school who taught me an important lesson in underestimating. She was very quiet and sat in the back of class with her big hair (it was the 90s). I don’t recall her ever volunteering an answer and she never seemed comfortable if someone called on her. It wasn’t until near graduation I learned she never missed a single question on any quiz or test in any of our financial classes. On top of this her thesis was being used by people in some state agencies before we graduated.
Hearing about Domino’s stock story reminded me of why it is important not to underestimate. Imagine it is January 1, 2010 and I asked you if you would rather own Domino’s or Google. Or Apple. Or any of the tech stocks. Which would you pick? And don’t be that person who says Domino’s only because you figure it is a trick question. Let’s be honest – would you have picked Domino’s back then?
Toward the end of 2009 Domino’s began what I can only describe as an honesty campaign. They shared videos where people told them their pizza tasted awful, the crust was like cardboard, and frozen pizza was better. Instead of ignoring the feedback they decided to take the criticism to heart and build a better product. They rebuilt it from the ground up and the market, being the ultimate decider, has said their choices were correct.
So how well has their stock done since 2010? As of earlier this year they were up over 2,000%. Of the 2,300 publicly traded companies with at least $1b in market cap they were number 4 in growth since the start of 2010. Of the famous FAANG stocks (Facebook, Apple, Amazon, Netflix and Google), only Netflix joined them on the top-50 list coming in two spots behind Domino’s and growth of just over 1,750%.
What is interesting with Domino’s and most of the companies at the top of this list – they were underestimated. No one is excited to talk about how they bought a pizza company whose crusts “tasted like cardboard.” Regardless if you are at the water cooler, the doctor’s lounge, the country club, or just grabbing an adult beverage with some friends, you would rather talk about Amazon then Domino’s. Be honest. CNBC knows no one is tuning in to hear about a pizza company that now uses fresh ingredients and expanded their menu to include wings and salad. Viewers tune in to see people standing in line for the new iPhone or how Amazon is testing drones for delivery.
Now, the other companies who did better than Domino’s include well-known names. Patrick Industries, ACADIA Pharmaceuticals and Accelerate Diagnostics. Yeah, I don’t know these names either. Two of them are medical companies and the other builds furniture.
Over the years I have learned no one can figure out the next Domino’s or Patrick Industries year after year. I’m better off when I buy a low-cost index that mirrors the market and doesn’t over or underestimate companies. Otherwise I may get wrapped up in all the overestimated excitement of a new “can’t miss” IPO like Snapchat, which has lost half its value since launch. Or miss out on a boring story like Domino’s resurgence. Instead I will use my limited brain power trying to figure out why and how so many people know what cardboard tastes like.