Domino's recently faced lawsuits over alleged underpayment of workers and withholding company information – so are we witnessing the end of the good times for this once-celebrated ASX stock, or are we on the brink of a unique opportunity to acquire an undervalued gem at a discount? Wealth Within chief analyst Dale Gillham dives in.
What makes Domino’s Pizza Enterprises Ltd an interesting case is that prior to the end of 2021, its share price was soaring, peaking at $167. Since then, it has nosedived by more than 75%, prompting questions about whether this sharp decline is warranted.
Let’s explore the specifics.
The Domino's dive
First up is Domino's recent financial performance, which presents a mixed picture. Revenue increased by 11% to $1.27 billion, which is encouraging, but profits dropped by 19%, settling at $57.8 million. This decrease in profit, despite higher sales, is largely due to rising costs and strategic decisions including exiting the Danish market.
On a brighter note, Domino's is expanding into new markets in Asia, positioning itself for future growth. The company is also heavily investing in new technology to improve its delivery and logistics, and increasing the company's overall efficiency.
Turning to the share price, the current drop to a significant long-term support level of $40 is intriguing to say the least.
The last time Domino's fell to this level was during 2018-19, after which it saw its share price rise by over 300%. This historical precedent makes the current share price particularly appealing, however, since the stock has yet to show clear signs of a rebound, I would like to see confirmation that buyers are willing to drive the price higher before becoming too optimistic about Domino's future.
If the company can resolve the recent lawsuits causing concern, Domino's strategic initiatives and the historical support level suggest there is potential for recovery and growth.
Therefore, I encourage you to carefully consider these factors and monitor the share price closely for indications of a recovery. If such signs emerge, then we might indeed be looking at an undervalued gem at a discount.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au