Domino's Pizza Inc (NYSE:DPZ) saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at DPZ’s outlook and value based on the most recent financial data to see if the opportunity still exists. See our latest analysis for DPZ
Is DPZ still cheap?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 40.4x is currently well-above the industry average of 25.6x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, DPZ’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of DPZ look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at DPZ future expectations. DPZ’s earnings over the next few years are expected to increase by 43.65%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in DPZ’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe DPZ should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on DPZ for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for DPZ, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.