If there is one pizza restaurant that everybody has seemingly ordered from at least once it would have to be Domino’s Pizza, Inc. (NYSE: DPZ). The Domino’s story began in 1960 when two brothers opened their first pizzeria called DomNick’s in Michigan. In 1965, they renamed their successful pizzeria Domino’s
By 1978, there were 200 pizzerias in operation. By 1989, there were 5,000 Domino’s stores. Today, there are more than 14,400 locations in over 85 countries.
Collectively, Domino’s delivers more than 1 million pizzas each day all over the world.
The mere fact that the company has exploded, and delivered some fantastic earnings over the years should be a reason for investors to buy the stock and hold it forever. However, with some storm clouds on the horizon for the company, investors should be very careful.
Here are 7 reasons to avoid Domino’s Pizza stock today.
The stock remains very expensive
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While way off the highs posted in early 2022, the shares are still very pricey. Trading at 25.6 price to earnings, that is a very high multiple for a food delivery company. After a strong rally off the lows printed earlier this year, investors may be ready to take profits before the year ends.
The competition grows larger every year
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While Domino’s once dominated the home delivery pizza business, that has changed drastically over the last 20 years. Massive advertising and pressure from Pizza Hut, Little Caesars, Papa John’s International, Inc. (NASDAQ: PZZA), and a host of smaller chains have given pizza lovers a plethora of choices.
Earnings have been bad and could get worse
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Second and third-quarter earnings 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.
Delivery fees and higher prices have become a big negative
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One of the reasons Domino’s was the industry leader for years was the delivery was free or very cheap. The company raised their delivery fees earlier this year and that has proven to be a big negative for those that like home delivery. In 2022 Domino’s raised prices on the company’s popular “Mix and Match” combo to $6.99 from $5.99 for customers who ordered delivery, citing rising inflation and cost pressures.
Sticky inflation weighing on consumers
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While inflation has fallen from the June 2022 highs of 9.1% to the current sub-4 % level, many consumers are opting for cheaper alternatives or are just cooking at home. Many Domino’s customers have opted to pass up delivery and pick up pizza as there is no delivery charge or tips to pay.
Will dealing with Uber help move sales higher?
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To increase sales Domino’s signed a deal with Uber Technologies, Inc. (NASDAQ: UBER) for their UberEats platform, and the company will be the exclusive third-party platform for Domino’s. Struggling with a sluggish delivery business, the deal is beginning with four test markets this fall.
Wall Street still grudgingly positive on the stock
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Research analysts across Wall Street favor the shares, but not really at the pound-the-table level. 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.
The bottom line for inventors looking at the shares is that the company has become an institution in the pizza world, and they have expanded their menu options to keep up with changing consumer palates. In addition, 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.
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