Dominos Shares Are Volatile!

by Ian Harvey
October 10, 2019


Dominos Pizza, Inc. (NYSE: DPZ) shares have been quite volatile this week – falling Monday and early Tuesday morning after the earnings report – then recovering as investors ignored the company’s continued same store sales struggles – and then on Wednesday, shares dropped back again. So, where to now for DPZ?

On Monday, 7th October, 2019, before the market opened, Stock Options Made Easy advised “Earnings Predictions” members to buy Dominos put options. Shares fell during the day; and the put trade was up 35% before earnings. Tuesday morning saw the shares continue to fall and members netted a potential profit of 105%!

However, shares rebounded after impressively higher, ending with a gain of around 5% in huge volume. Big volume pointed toward unequivocal institutional buying after the first hour of trading.

Wednesday saw a reversal in share price, falling $5.29 or -2.09% to close the day.

The question now remains, where is Domino’s Pizza heading now?



The Recommended Trade on Dominos Pizza.…..

"Dominos Pizza, Inc. (NYSE: DPZ) will report earnings before the market opens. The consensus earnings estimate is $2.05 per share on revenue of $819.40 million; but the Whisper number is higher at $2.12 per share.

Consensus estimates are for year-over-year earnings growth of 5.13% with revenue increasing by 4.25%.

For the last reported quarter, it was expected that Domino's Pizza would post earnings of $2 per share when it actually produced earnings of $2.19, delivering a surprise of +9.50%.

DPZ has traded lower on the year, due in part to a string of revenue misses. The company has posted weaker than expected sales each of the last five quarters which has kept pressure on the stock. The July selloff following the disappointing Q2 numbers drove the stock to its 52-week low. DPZ has started to recover but remains in the lower end of its 52-week range and faces a stiff level of resistance at $250. Despite trading in the lower end of its 52-week range, the stock is still trading at a high valuation at 27 times earnings, which leaves additional downside risk on another negative surprise.

The company has a market cap of $9.99 billion and an enterprise value of $13.55 billion. Over the past five years, its revenue has grown 20.10% and its earnings per share have increased 22.70%.

Shares have fallen 14% over the last 12 months; the stock is currently trading with a price-earnings ratio of 27.03. The price has been as high as $302.05 and as low as $220.90 in the last 52 weeks. As of Friday, the stock was trading 19.85% below its 52-week high and 9.60% above its 52-week low.

Ahead of the report, Wedbush analyst Nick Setyan initiated coverage on the stock with an Outperform rating and a $280 price target. Setyan says Domino’s financial model is among the most compelling in the publicly traded universe.

“We believe sentiment is overly negative in the near-term and we view the current intensity of third party delivery’s intrusion as unsustainable,” he wrote in a note.

Although the analyst concedes to the fact that competitive intrusion from third-party delivery services are having an impact on Domino’s same-store sales growth, he believes near-term sentiment has turned overly negative.

“We view the current economics of 3PD as unsustainable beyond the near-term from the point of view of both restaurants and third party marketplaces,” he said.

However, it should be noted that DPZ shares have moved lower the day after four of the last five earnings releases, including a one-day slide of 8.7% in mid-July. On average, the stock has moved 5.2% in the session after the last eight reports, regardless of direction. This time around, the options market is pricing in a slightly bigger one-day move of 7.6%.

Short interest has increased by 63.4% and overall earnings estimates have been revised lower since the company's last earnings release."

Option trade to consider: Buy the DPZ OCT 18 2019 240.000 PUT at approximately $8.00.

The Earnings Report for Dominos Pizza.....

Dominos Pizza announced weaker-than-expected third-quarter results. The company’s third-quarter sales and earnings were below analysts’ expectations. The same-store sales growth also missed analysts’ estimates.

Dominos stock, which has seen double-digit growth for the past 10 years, declined 2.3% this year through Monday’s close.

Join us today and see what  future trades will be recommended!

Looking Forward.....

Dominos Pizza Inc. fell after the company reined in its long-term sales forecast as it struggles to fend off competitors’ increasing delivery options and discounts.

The chain offered a less robust outlook, saying U.S. same-store sales will increase 2% to 5% in the next two to three years. That replaces its previous three-to-five-year forecast for 3% to 6% growth.

“[W]e believe that the evolving market conditions and the resulting uncertainty have reduced the relevance of a three-year to five-year outlook,” said Richard Allison, Domino’s chief executive officer.

“The reality is that we don’t have visibility into exactly how long some of these new entrants into the quick-service delivery segment are going to benefit from the financial support of aggregators who are seeking to buy market share. These players are currently pricing below the cost to serve, offering free delivery, or other deep discounts that are currently enabled by investor subsidies.”

Dominos is having a hard time keeping up its fiery sales pace as competition for food delivery heats up from both fast food and sit-down chains to lure time-strapped Americans.

Where to now?

Q3 consensus estimates forecast Domino’s revenue to jump 5.18% to $1.14 billion and for its bottom-line to leap 12.6% to $2.95 per share. The supply chain segment is projected to grow 8.02% to $666.7 million and company owned stores sales are expected to slip 12.7% to $136.4 million. International franchise and royalty fees are expected to hike 11.55% to $78.7 million.

However, comp sales are projected to continue decelerating as US company-owned comp sales are forecast to leap 2.83% compared to the 3.6% hike a year ago.

The fierce competition Domino’s faces from rival pizza companies and third-party delivery companies have weighed on the company’s core business.


Where to now for Domino’s Pizza?

Will we recommend another options trade on Domino’s Pizza?

What will “Stock Options Made Easy” advise members to do?

Join us today and find out!


An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!

Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


”Success is simple. Do what's right, the right way, at the right time.”

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Options traders are not successful because they win.
Options traders win because they are successful.

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