The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price ripped into record all-time highs of $115.97 in the second half of February.
The company bolstered its gains by a strong half-year results announcement on 17 February, which resulted in price target upgrades from Bell Potter and Goldman Sachs.
Despite the company’s strong showing in reporting season, its shares managed to give back all of its gains by the end of the month. Not only that, but the Domino’s share price finished February 2% lower, from a peak return of 25%.
Why did the Domino’s share price tumble?
One reason could be attributed to rising bond yields which was a catalyst for much of the selloff for growth and tech shares in February.
Higher interest rates are considered inflationary and signal higher borrowing costs for businesses. Given current near-zero interest rates, this move up could negatively impact businesses and equity markets.
The pizza company isn’t a tech stock, but it does fetch a tech-like valuation, with a price-to-earnings (P/E) ratio of approximately 45.
Long term growth intact
While the Domino’s share price is being volatile in the short-term, the company reaffirmed many positive aspects of its medium to long term growth strategy.
The company’s half-year results cited an accelerated investment in new store openings. It also noted it was keeping an eye out for strategic acquisitions in the second half of FY21.
As of 1H21, Domino’s owned 1,207 stores in Europe, 846 stores in Australia and New Zealand and 742 stores in Japan. By 2025-2028, it targets ~2,700 stores across its European operations, ~1,200 stores in ANZ and ~1,000 stores in Japan.
While the company did not give concrete guidance figures, it expects “full-year performance to be even higher than our already positive, medium-term outlook”.
Its 3-5 year forecast horizon included annual same-store sales growth between 3% to 6%. Predicted yearly store growth was between 7% to 9% and annual net capex between $60 million to $100 million.
While its shares finished flat in February, the Domino’s share price is still 60% higher than pre-COVID levels.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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