Does Domino’s Pizza, Inc.’s (NYSE:DPZ) July Stock Price Reflect Its Future Growth?

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Growth expectations for Domino’s Pizza, Inc. (NYSE:DPZ) are high, but many investors are starting to ask whether its last close at $269.92 can still be rationalized by the future potential. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Domino’s Pizza

Should you get excited about DPZ’s future?

Investors in Domino’s Pizza have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 20 analysts is certainly positive with earnings forecasted to rise significantly from today’s level of $8.843 to $13.103 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which illustrates an optimistic outlook in the near term.

Is DPZ’s share price justified by its earnings growth?

Domino’s Pizza is looking rather expensive based on its price-to-earnings (PE) ratio of 30.52x. This illustrates that Domino’s Pizza is overvalued compared to the US market average ratio of 17.98x , and overvalued based on current earnings compared to the Hospitality industry average of 21.89x .

NYSE:DPZ Price Estimation Relative to Market, July 16th 2019
NYSE:DPZ Price Estimation Relative to Market, July 16th 2019

We already know that DPZ appears to be overvalued when compared to its industry average. But, to be able to properly assess the value of a high-growth stock such as Domino’s Pizza, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 30.52x and expected year-on-year earnings growth of 11% give Domino’s Pizza a quite high PEG ratio of 2.74x. This means that, when we account for Domino’s Pizza’s growth, the stock can be viewed as overvalued , based on fundamental analysis.

What this means for you:

DPZ’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are DPZ’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has DPZ been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of DPZ’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.