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Domino’s Stock Falls on Longbow’s Target Price Reduction

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Stock performance

At the end of November 28, 2017, Domino’s Pizza (DPZ) was trading at $172.29, a fall of 1.3% from the previous day’s closing price. The lowering of 4Q17 SSSG (same-store sales growth) guidance and Longbow’s target price reduction could have led to the fall in Domino’s stock.

Since the announcement of its 3Q17 earnings on October 12, 2017, Domino’s stock has fallen 17.7%. Although Domino’s outperformed analysts’ EPS (earnings per share) and revenue estimates, the stock price of the company fell due to the slowing down of SSSG (same-store sales growth) in domestic company-owned restaurants. Also, the entry of fast food and fast-casual restaurants into the delivery business is putting pressure on pizza companies. With the entry of new players, customers have more choices, thus ending pizza companies’ dominance in the delivery business.

You can read more about Domino’s Pizza’s 3Q17 earnings in Why Didn’t Domino’s 3Q17 Earnings Impress Investors?

Year-to-date performance

Despite the recent fall in Domino’s stock price, it has returned 8.2% year-to-date. During the same period, peers Papa John’s (PZZA) and Yum! Brands (YUM) have returned -34.5% and 27.9%, respectively.

The S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR Fund (XLY) have returned 17.3% and 17.6%, respectively.

Valuation multiple

As of November 28, 2017, Domino’s was trading at a forward PE (price-to-earnings) multiple of 25.4x compared to 31.8x before the announcement of its 3Q17 earnings. The decline in its stock price resulted in a lower valuation multiple. On the same day, Papa John’s (PZZA) and Yum! Brands (YUM) were trading at 19.1x and 25.9x, respectively.

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