Domino’s Pizza The stock of the NYSE:DPZ plummeted by 18% within hours of its release of its Q2 earnings last week. This was despite the fact that its revenue figures were in line with analyst estimates.
Investors may have hoped that the pizza maker’s results would exceed Wall Street’s expectations. However, the bottom line grew by 29.8% over the past year.
Moreover, on an individual share basis, the company reported a EPS of $4.03 – a significant improvement over the previous year and above analysts’ consensus estimate of $3.70.
The company’s growth in top-line revenue was respectable, if not spectacular. Revenue increased 7.1% to $1.1 billion in Q2 2024, roughly in line analysts’ expectations.
Domino’s results were not perfect in every aspect. Investors should buy DPZ stock at a discount, as the market’s reaction was arguably overdone.
Why Domino’s Pizza stock collapsed
The financial markets do not always behave in the way that one would expect. The market can sometimes cherry-pick a negative data point, and ignore the positive results. This seems to be the case for Domino’s Pizza’s stock.
In this case, it’s evident that the market was not too happy with Domino’s Pizza’s expectations that the company would “fall 175 to 275 net stores below its goal of 925+ stores by 2024” internationally.
Domino’s Pizza acknowledged that “DPE, one of their master franchisees, is facing challenges in both openings as well as closures.” It assured that they are “partnering closely with DPE to work through this process, and will provide more updates once it has a better understanding of the impact on its annual net store growth figures.”
Here’s the problem. The market hates lack of “visibility” because investors who are uncertain are afraid investors.
Sandeep Reddy, Domino’s Pizza’s Chief Financial Officer (CFO), offered some words of comfort to shareholders who were apprehensive. Reddy told Barron’s that the “stores closing, including those in Japan, France and other countries, had very low volume” and “therefore will have a very little drag on the top and bottom line of the company”.
He added that the impact on operating income was “really insignificant” in the big scheme of things. Investors should remain calm and maintain a positive outlook for Domino’s Pizza.
We tend to agree with Reddy’s calm assessment. Domino’s Pizza should benefit in the long term if it plans to close restaurants that are underperforming. The bottom line of Domino’s Pizza looks solid, and the same-store sales are not too bad.
If you are a contrarian and want to take advantage of a tasty dip buying opportunity, then feel free to purchase some DPZ shares.
This site is intended for entertainment only and does NOT offer financial advice.
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