Is Domino's Pizza, Inc. (NYSE:DPZ) Potentially Undervalued?

Let's talk about the popular Domino's Pizza, Inc. (NYSE:DPZ). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$403 at one point, and dropping to the lows of US$342. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Domino's Pizza's current trading price of US$348 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Domino's Pizza’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Domino's Pizza

Is Domino's Pizza Still Cheap?

Domino's Pizza appears to be overvalued by 20% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$348 on the market compared to my intrinsic value of $289.34. This means that the opportunity to buy Domino's Pizza at a good price has disappeared! Another thing to keep in mind is that Domino's Pizza’s share price is quite stable relative to the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What kind of growth will Domino's Pizza generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Domino's Pizza's earnings over the next few years are expected to increase by 24%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in DPZ’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe DPZ should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DPZ for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for DPZ, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for Domino's Pizza you should be mindful of and 2 of them are a bit unpleasant.

If you are no longer interested in Domino's Pizza, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.