Broker thinks Domino’s Pizza Enterprises Ltd. shares could get close to $100

Credit: Dominos

One of the standout performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today has been rapidly growing pizza chain franchisor Domino’s Pizza Enterprises Ltd. (ASX: DMP). At the time of writing its shares are up 5.5% to $64.90.

The reason for the rampant buying of its shares today is likely the release of a positive research note from investment bank Morgan Stanley.

The note reveals that analysts at Morgan Stanley have reiterated their overweight rating on its shares, but increased their price target from $80 to $95. Incredibly this new price target sits 46% higher than the current share price.

Whilst I am a huge fan of Domino’s and think it is arguably one of the best growth shares on the ASX, I would be very surprised to see its share price reach that target. After all, its shares are already changing hands at 47x estimated FY 2017 earnings of 138.9 cents per share according to CommSec.

Admittedly its European expansion does have the potential to drive earnings growth at a high rate over the coming years. But I’m still not convinced it will be enough to warrant a valuation of 68x FY 2017’s estimated earnings.

With the U.S. election and the potential Fed rate hike coming in the near-term, I expect that markets could become reasonably volatile. Shares which trade on excessive valuations could be prone to wild swings during this time.

We already had a taste of this yesterday in fact. Although Domino’s finished the day down by just 3.4%, at one stage its share price followed the likes of Class Ltd (ASX: CL1) and Webjet Limited (ASX: WEB) sharply lower to be down by over 8%.

For those that do plan to invest in Domino’s I would suggest holding back and waiting until after the U.S. election result. A better entry point may well be presented to you.

In the meantime these reasonably priced growth shares could be far better investment options if you ask me. Are they on your list?

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Class Limited. 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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