Domino’s Pizza, Inc. (NYSE:DPZ) is the worldwide leader in pizza delivery companies. Started in 1960, this franchise operation has grown far beyond anyone’s expectations from humble Michigan roots. Now, it operates 14,000 stores in 85 countries; its drivers log in excess of 10 million miles per week and DPZ serves more than 1 million pizzas every day.
Over the past five years, Domino’s stock has risen more than 470%, which is pretty impressive for a pizza delivery franchise. But, shares of DPZ stock have dropped nearly 10% since management released the company’s quarterly earnings figures in late July.
But, as is typical of Wall Street these days, the shock wasn’t because of bad numbers. On the contrary, earnings beat expectations by a dime, revenue came in ahead estimates and both domestic and international comp sales were up.
Well, what you need to understand is, analysts say that they are always forward looking. That the price today was chosen by looking ahead to what a company is projected to do and that pricing changes given their outlook for the future, not a company’s most recent earnings.
But what they say and what they do can be entirely different depending on company they’re looking at. It’s more subjective than that.
What they didn’t hear from DPZ this time around was rising guidance – DPZ’s international growth wasn’t strong enough and margins were narrowing.
But a 14% selloff on worrisome possibilities?
A little overblown. And that’s why the stock has recovered more than half that loss in recent trading days.
Also, remember that domestically — a mature and highly competitive market from national players like Papa John’s Int’l, Inc. (NASDAQ:PZZA) and Yum! Brands, Inc.’s (NYSE:YUM) Pizza Hut, as well as scores of local players — DPZ same store sales are consistently rising by almost double digits.
What’s more, international same-store sales have been growing for the past 94 consecutive quarters, which should be a clear indicator that DPZ knows what it’s doing abroad and there has to be some wiggle room in growth from quarter to quarter given currencies, individual economies, etc.
The point is, DPZ has been unjustly hammered. And that presents us with a great short-term buying opportunity.
It’s likely that the drop was so big and fast because there were some people with sizeable short positions betting on weaker numbers and when the selling started, DPZ stock dropped like a brick.
But that’s just technical selling. And now we’re seeing fundamental buying, which also means the shorts have gotten out of the way. DPZ is on sale, but given this stock’s history, it’s for a limited time only.