A financial news website has warned its readers to think twice before purchasing stock in Domino’s Pizza right now, due to “some storm clouds on the horizon for the company.”
In a November 5 article, titled “7 Reasons to Avoid Buying Domino’s Pizza Today,” 24/7 Wall St. said investors “should be very careful” if they’re looking at Domino’s as an investment opportunity. For starters, the article says, Domino’s stock remains “very pricey,” trading at 25.6 price to earnings. “That is a very high multiple for a food delivery company,” the website notes, adding, “After a strong rally off the lows printed earlier this year, investors may be ready to take profits before the year ends.”
Additionally, Domino’s, although still the largest pizza chain on the planet, isn’t the dominant force it used to be, as rivals like Little Caesars, Papa Johns and smaller pizza chains have surged in recent years. Moreover, the article states, “Second and third-quarter earnings [for Domino’s] were both weak. Third-quarter sales at Domino’s non-franchised U.S. restaurants fell more than 23% from a year ago to $86.3 million. Overall revenue was down almost 4% from last year.”
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Another “big negative”: Domino’s raised its prices as well as its delivery fees as food and labor costs went up and sales slackened over the past two years. More customers today are looking for carryout options as delivery gets too costly.
Domino’s executive leadership has a two-pronged plan to shore up sales in the U.S. The brand has reinvented its Domino’s Rewards loyalty program to make it easier to earn points and free food, while hopes are high that a partnership with Uber Eats will get Domino’s pies to more customers faster.
Overall, how does Wall Street assess Domino’s as an investment opportunity? “Research analysts across Wall Street favor the shares, but not really at the pound-the-table level,” the 24/7 Wall St. article notes. “There are 15 Buy ratings, 8 Hold or Neutral ratings, and 1 Sell rating. Good but not great, and, given the fact that the last two earnings reports were less than stellar, the analyst community will be closely looking at the fourth quarter print.”
On the upside, Domino’s remains an “institution in the pizza world” and has expanded its menu while joining its major competitors in taking advantage of third-party delivery platforms. “In addition,” the article concludes, “the sheer strength of the brand will continue to drive sales by delivery or in-store pickup. It would make sense to scale buy shares over some time, but not all now and not all at once.”