Here’s why the Domino’s Pizza share price has plunged 20% so far in 2016

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has dropped 20% since February 1, earning the quick service restaurant chain a speeding ticket from the ASX.

The share price fell from $60.60 to $48.56 on Friday 5th February, but Australia’s largest pizza chain said it had no explanation for the fall. Since then, shares have recovered somewhat, to close at $52.56 today.

A possible driver of the share price fall is an article by our own Joe Magyer published in the Australian Financial Review (AFR) in mid-January 2016.

Joe highlighted the P/E ratio which at the time was ‘a nosebleed mark of 77.5x‘, making shares incredibly expensive, even by Domino’s own high standards. Today’s P/E is not that much different – a slightly lower but still expensive 72x. Even using forecast consensus earnings per share of 96 cents for the 2016 financial year puts the share price on a P/E ratio of 54.5x.

Go ahead and buy their pizzas, but you might want to think twice before buying Domino’s shares at this price.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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