Is it time to grab a bite at Domino’s Pizza?



MarketBeat.com – MarketBeat

Domino’s Pizza, Inc. (NASDAQ: DPZ) has failed to deliver for investors in 2022. As a result, the stock is down more than 33%. That’s significantly higher than the S&P 500 index, which shows an annual loss of 19%.

The company has faced rising ingredient costs and difficulty finding drivers due to higher inflation. This has been shown in the company’s performance reports. As a result, earnings have missed expectations for the past four quarters.

But analysts’ sentiment is improving. And in this article, we’ll explain why it might be time for investors to take a bite out of DPZ stock while it’s trading below its pre-pandemic price.

Pizza has pricing power

A key reason for analyst optimism is that Domino’s enters 2023 with its highest prices in over ten years. And analysts believe the company has room to raise the prices of its $7.99 fulfillment deal and $6.99 Mix & Match deal.

This comes as analysts believe the company’s ingredient costs are leveling off or declining slightly. This combination will support higher margins, more substantial earnings and a higher share price.

Defining the true cost of pizza delivery

According to Statista, consumer spending on pizza delivery reached a new record of $19.8 billion in 2021. That was the most significant year-over-year growth, up from $14 billion in 2020 and $11 billion in 2019.

And the US spends $11 billion a year on pizza delivery. But of course it’s only pizza delivery, not total food delivery. And Domino’s has the largest market share, with 31% of the actual amount consumers spend on pizza.

But that growth has come at a cost. Specifically, the company finds it difficult to find and pay drivers in a tight labor market. However, analysts believe that the current wave of layoffs, hiring freezes and stiff inflation is likely to increase the candidate pool of willing drivers.

And even if it doesn’t, the company says there’s some evidence that inflation is driving consumers away from pizza delivery. However, the company is also reinstating its “execution tip” this holiday season, which could have the combined effect of boosting demand while helping the company navigate supply issues.

Is it time to buy DPZ shares?

Strictly based on value, there may be better options right now. The share still has a P/E ratio higher than the sector average. But if the company meets expectations for high single-digit earnings growth over the next five years, Domino’s could grow into that valuation.

And while you wait, Domino’s offers a tasty dividend. While the 1.23% dividend yield may not be all that exciting to investors, it can be deceiving. The company pays out $4.40 per share, has a sustainable payout ratio of around 33%, and has increased its dividend in each of the past ten years.

Leave a Reply

Your email address will not be published. Required fields are marked *