Down 38%: Are Domino’s shares ready to recover?

Shares in Domino’s Pizza Enterprises Ltd (ASX: DMP) took another hit on Tuesday, tumbling 11% to $15.85.

That extends a rough run for investors. The ASX stock is now down around 25% year to date and roughly 38% over the past 12 months. By comparison, the S&P/ASX 200 Index (ASX: XJO) has climbed about 9% over the same period.

So, what’s going wrong, and do experts see a way back?

US weakness rattles confidence

The latest sell-off of Domino’s shares appears to have been triggered by an update from Domino’s Pizza Inc (NASDAQ: DPZ) on Monday.

The US business reported same-store sales growth of just 0.9%, falling well short of market expectations for a 2.3% increase. It also trimmed its full-year guidance, raising concerns about demand in a tough consumer environment.

That matters for Australian investors. While Domino’s Pizza Enterprises operates across multiple regions, the US update has spooked the market. Investors are increasingly worried that similar pressures — including cost-of-living constraints and softer discretionary spending — could be weighing on Domino’s operations globally.

In short, if the world’s largest Domino’s franchise is feeling the pinch, others might not be far behind.

Low valuation… for a reason?

After such a sharp decline, Domino’s shares are now trading on relatively low valuation multiples compared to historical levels.

At first glance, that might look like a bargain. But not everyone is convinced.

Bell Potter has initiated coverage with a hold rating and an $18 price target. While it acknowledges the cheaper valuation, it argues that the discount is justified given the company’s modest earnings growth outlook.

In other words, the market may not be overly pessimistic. It may simply be pricing in slower growth.

What next for Domino’s shares?

The broader analyst picture is mixed.

According to TradingView data, 10 out of 18 analysts rate the stock as a hold. Five see it as a buy or strong buy, while three recommend selling.

That split reflects the uncertainty surrounding the business. The average price target sits at $20.07, implying potential upside of around 27% from current levels. The most bullish forecasts suggest gains of nearly 80%, while the most cautious point to a further 18% downside, with a $13 target.

That’s a wide range and a sign that visibility is still limited.

Foolish Takeaway

Domino’s shares have been under heavy pressure, and the latest US update hasn’t helped sentiment.

While the stock now looks cheaper, the key question is whether earnings can stabilise and return to growth.

For now, analysts aren’t fully convinced. And until there’s clearer evidence of a turnaround, Domino’s may remain stuck between bargain territory and a potential value trap.

The post Down 38%: Are Domino’s shares ready to recover? appeared first on The Motley Fool Australia.

More reading

• Why Beach Energy, Domino’s, Origin Energy, and Pantoro Gold shares are dropping today
• Why are Bega Cheese and Dominos shares crashing today?
• These are the 10 most shorted ASX shares
• Buy, hold, sell: Collins Foods, Domino’s, and Guzman Y Gomez shares
• These are the 10 most shorted ASX shares

Motley Fool contributor Marc Van Dinther has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.