The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has fallen heavily this week.
Since the start of the period, the pizza chain operator’s shares have lost over 20% of their value.
Why is the Domino’s share price sinking this week?
The main driver of the Domino’s share price weakness has been the release of a half year result that fell short of expectations.
In case you missed it, Domino’s reported an 11.1% increase in network sales but a 5.3% decline in underlying net profit after tax to $91.3 million. This earnings miss was driven largely by its underperformance in Asia.
Is this a buying opportunity?
The team at Morgans believe the weakness in the Domino’s share price is a buying opportunity for investors.
According to a note, the broker has upgraded the company’s shares to an add rating, albeit with a reduced price target of $115.00.
Based on the current Domino’s share price, this implies potential upside of 43% for investors over the next 12 months.
What did the broker say?
While the broker was disappointed with Domino’s performance during the first half, it remains positive on the future.
Morgans is forecasting “an 18.0% 5-year cumulative average growth rate of EPS between FY20 and FY25F.” This is expected to be underpinned by a combination of steady same store sales growth, its ongoing store rollout, and the inclusion of the new market of Taiwan.
The broker also highlights that Domino’s has the balance sheet capacity to make acquisitions that could bolster its growth.
Overall, its analysts believe the risk/reward on offer now is attractive, particularly for a company of its quality.
Morgans concluded: “DMP has de-rated substantially from a high of $165 in September last year to close at $86 today [$80.52 now]. Even after the de-rating, it remains a premium multiple stock, but in our opinion the growth potential of the business warrants this status. ROIC is set to accelerate in the years ahead. We think investors should take their opportunity to build a position in this high quality business at the current attractive entry point. We upgrade to ADD.”
The post ‘Attractive entry point’: Broker upgrades Domino’s (ASX:DMP) shares appeared first on The Motley Fool Australia.
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