Vitamins and wellness products, versus pizza and garlic bread.
A $2.5 billion market cap, versus a $5.4 billion market cap.
Australian businesses and cracking growth in China, versus a truly global business and rapid expansion via acquisition.
Blackmores Limited (ASX: BKL), or Domino's Pizza Enterprises Ltd. (ASX: DMP)?
Blackmores trades on an estimated 31 times this year's forecast earnings, while Domino's trades on a staggering 63 times. Blackmores profits have grown 145% for the 9 months to March 26, while Domino's profits were up 57% for the six months to 3 January 2016.
Blackmores pays a 2% dividend, fully franked, while Domino's yields 1%, franked to 70%. At face value, Domino's shareholders are paying more, and getting less. Let's look a little deeper.
Blackmores has $43 million in cash, and just $20 million in debt as of its half-year report. Domino's has $57 million in cash, and $149 million in debt, also as of its half-year report. Blackmores generated $60 million in cash from its operations, while Domino's generated $55 million.
So far Blackmores is in the lead, especially considering it is roughly half the size of Domino's, yet has less debt and generates more cash.
The competitive environment
Blackmores is just one of many players in the Chinese vitamin market, where it's matched up against global giants like Swisse, Pfizer, and Amway. Blackmores is also likely to face off against Bellamy's Australia Ltd (ASX: BAL), and Vitaco Holdings Ltd (ASX: VIT) in some categories such as baby formula and supplements. While sales have been growing, they've also been helped by rampant demand that reportedly sees many products selling in China for multiples of their shelf price in Australia. With supply ramping up to take advantage of the profits on offer, prices must surely trend down over the longer term – though the impact on Blackmores' sales and margins is uncertain.
Domino's likewise faces a mountain of competition, and is vulnerable to changing consumer perceptions and/or price increases (e.g., if raw materials or labour costs increase). These pressures are amplified in the discount fast food market, where consumers are sensitive to price. The difference is that Domino's can grow more effectively by purchasing expansion, and then leveraging its low prices and innovations (online ordering, driver GPS tracking, etc) to drive same-store sales. As the company grows however, it will become harder to 'move the dial' with acquisitions – and acquisitions are capital-intensive.
Domino's is also limited by the service range of each store, while Blackmores' distribution model and online platform could see its products reach more consumers for less cost.
Foolish takeaway
Given the choice, I'd lean towards buying Blackmores. Both businesses have very attractive attributes and capable management, but Blackmores has less debt, requires less ongoing capital investment, produces more cash flow, and appears cheaper.
