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What to Make of Domino’s after Recent Pullback
Stock Analysis & Ideas

What to Make of Domino’s after Recent Pullback

Domino’s Pizza (DPZ) stock is attempting to bounce back from a correction, as the firm continues to grapple with less-favorable year-over-year comparisons.

Undoubtedly, Domino’s was one of the best lockdown plays because of its incredible e-commerce platform and unmatched delivery infrastructure that was in place well before COVID-19 struck. Now that the world is ready to reopen, Domino’s looks to have lost a step.

Although another few tough quarters could weigh on shares, I am bullish on DPZ stock, as its long-term fundamentals are still intact.

Its technological strength, in particular, is one of many reasons why Domino’s will continue to do well on the other side of the pandemic. (See today’s best-performing stocks on TipRanks)

An Underwhelming Third Quarter, as Expected

On October 15, Domino’s posted underwhelming third-quarter sales numbers, which jumped 3% year-over-year to just shy of $1 billion.

While Domino’s missed the mark on the top line by the slightest of margins, it is worth noting that earnings were impressive. Earnings per share came in at $3.24, beating the Street consensus that called for $3.11.

Despite the modest bottom-line beat, Q3 2021 certainly wasn’t a quarter to write home about. Still, given the diminishment of COVID-19 tailwinds due to a continued economic reopening, the numbers weren’t nearly as bad as they could have been. The initial reaction to the quarter was negative, but shares have since recovered lost ground.

Domino’s Is Doing Well Given the Tougher Circumstances

As Domino’s continues funneling money into its e-commerce platform, the business will follow. Even on the other side of this pandemic, people still have an appetite for a great pizza. If anything, the post-lockdown surge in dining out and exploring non-pizza items may have consumers growing less tired of the incredibly fast-growing food category.

While pizza may not be on par with chicken as far as quick-serve food menus are concerned, it’s still a robust area of the market that’s likely to continue its growth well after the coronavirus is eliminated.

With the continued rise of food delivery services allowing consumers to order anything to their doors in a matter of minutes, the fact that Domino’s has held its own is a testament to the high-quality product the firm creates. Not to mention the incredible convenience of the firm’s robust digital platform, which can only strengthen with time.

Undoubtedly, few foods feel quite as fresh and hot as a pizza. As more business shifts online, with now over 70% of American revenue derived from its e-commerce platform, Domino’s has a chance to continue leveraging technology to its advantage.

Domino’s Continues to Demonstrate Its Innovative Talents

Some may think it’s far-fetched to refer to Domino’s as a technology company, but it’s true. The company is arguably the most innovative food firm out there, and it’s likely to continue leading the charge for years to come.

Whether it be investing heavily in beefing up its e-commerce platform, innovative new menu items (an opportunity in the alternative meat space), minimizing delivery times, or an increased focus on autonomation, it’s clear that it’s tough to outmatch the pizza giant on the tech front.

Wall Street’s Take

According to TipRanks’ consensus rating, DPZ comes in as a Buy, with 11 Buys and 10 Holds assigned in the past three months.

As for price targets, the average Domino’s price target is $538.48, implying 15.8% upside potential. Analyst price targets range from a low of $468.00 per share to a high of $600.00 per share.

A Compelling Valuation

Indeed, Domino’s has more than just a great brand and product going for it. For that reason, shares of DPZ deserve to trade at a lofty premium multiple. Right now, shares trade at a modest 35.4 times trailing earnings and around 30.5 times forward earnings. The latter metric leaves DPZ trading at a slight discount to the peer group.

Why is Domino’s trailing on a price-to-earnings basis? Perhaps investors are discounting Domino’s ability to maintain its strength in the post-pandemic environment. Alternatively, they could be overweighing Domino’s recent quarterly results, which weren’t all that bad considering how heavily the cards were stacked against it.

In any case, DPZ stock should be an excellent buy for the long run. Sluggish near-term same-store sales comps from Q3 could continue into Q4. Should the stock continue its descent, investors should keep watch for an even better entry point. Little has changed about the long-term fundamentals over these past few weeks of selling.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

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