DP Poland (LSE:DPP) demonstrates perfectly why I keep penny stocks on a short leash. Down 21% over one year, and 41% since March 2024, it has been a serial loser for quite some time now.
Is there any way back for this penny stock?
Capital-light transition
For those wondering, DP Poland is the operator of Domino’s pizza stores and restaurants across Poland and Croatia. I was in Warsaw earlier this year and popped into one of its locations to conduct some, er, research.
What did I think? Well, the pizza was tasty, as you’d expect from Domino’s, albeit I’d had a couple of Tyskie beers beforehand. My takeaway was that I see no reason why this firm can’t be consistently profitable in future. But to achieve this, the group needs to transition from company-operated stores to a sub-franchise model.
This way it will collect predictable royalty fees from franchisees based on a percentage of top-line system sales. A capital-light model like this also allows a faster rollout of stores, enabling the group to scale up faster.
At the end of June, 53 of 139 locations, around 38% of the estate, were franchisee-owned, up from 15% the year before. On top of this, the firm has consolidated its food preparation facilities into a central hub.
CEO Nils Gornall says that the “operational benefits of our commissary consolidation, completed in Q1 2026, are beginning to flow through the business, supporting improved cost efficiency, labour productivity and long-term scalability across the network“.
Mixed results
In the first half, group system sales increased 17.5% on a constant‑currency basis to £34.8m. Orders grew 11.5% to 2.7m, including 34.4% in Croatia, where it has a much smaller presence than Poland.
However, like-for-like system orders in Poland swung from 3.9% in Q1 to -2.3% in Q2. Management blamed part of this on a big marketing and promotional campaign in Q2 2025, creating a tough comparable period.
Still, that was a softer-than-expected performance, and since then a new CEO (Łukasz Ostrowski) has come in. We won’t get a look at how all this translated into profits (or not) until half-year earnings in mid-September.
Will it deliver the goods?
Returning to my original question then, is there any way back for this penny stock? Well, in the firm’s own words, the priority is to remain “focused on continued franchise transition to a franchise-led, capital-light operating model, which is expected to deliver system sales growth [and] margin expansion“.
Given that royalty streams are high-margin, the company needs to keep upping the percentage of franchised stores. If it can do this, and turn the corner on profitability, the stock could generate tasty returns from 7p today.
On the other hand, there’s no history of profitability, which adds considerable risk. DP Poland might need to tap shareholders for further cash at some point (shareholder dilution has been another problem here).
Meanwhile, more consumers in Poland are under the cosh from inflation. Not as bad as here, but the backdrop’s still far from ideal.
Putting all this together, the stock remains high-risk/high-reward. If investors are considering a punt, it’s only suitable as a small holding in case it keeps disappointing.
I see less risky small-cap shares elsewhere.
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Ben McPoland owns shares in DP Poland.
This story originally appeared on Motley Fool
