Why Domino's Is Still a Buy After Third Quarter Earnings Miss

Surging pizza delivery demand amid the pandemic, customer reliability, and stock price appreciation over the last decade are reasons to stay on bullish on Domino's.
Anthony RussoOct 08,2020,17:06

Shares of Domino’s Pizza (NYSE: DPZ) plummeted as much as 8% Thursday after posting a mixed third-quarter financial report.

The world’s largest pizza chain said in a statement today that revenue soared 18% year-over-year to $967.72 million on a net income $99.1 million, or $2.49 a share. Analysts were anticipating revenue of $953 million on earnings per share of $2.79.

In the quarter, the pandemic showed to have both a positive negative impact on the company.

Starting with the good news, Domino’s watched its sales surge across the world. The pizza chain said its Comparable U.S. sales surged 18%, and 6% overseas.

However—that led to one of Domino’s problems, as the demand for pizza also raised costs for the company. With increased sick pay for employees, higher wages for frontline workers, and costs for personal protective equipment, Domino’s spent around $11 million.

The stock plunge today comes after Domino’s recently set a new all-time high of $435.58 per share. Ahead of its earnings report, shares of Domino’s had been picking up some serious momentum since its close of $385.98 per share on Sept. 16. By midday today, the stock in Domino’s was trading around $400 per share.

In September, I debated fellow CapitalWatch reporter Steven Lerner on Domino’s stock. I recommended a buy, citing increased demand amid the pandemic, as well as a history of long-term share price appreciation and the company’s reliability to consumers. Steven, however, was concerned about the stock potentially being overvalued and its small dividend yield.

Even with today’s stock fall, Domino’s stock remains up since the debate when it was trading at around $390 per share.

Will the stock fall further in the coming days? It could, but that does not change the surging demand it should continue to see through the pandemic. At this dip, I would buy with confidence the stock will be above current levels between now and the end of 2020.

As of early September, Domino’s operated 17,256 locations globally.

Topics:Domino's, Buy, Sell