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Is it time to buy Domino’s Pizza Enterprises Ltd shares?

On Monday the Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price had a disappointing start to the week and finished the day with a decline of 3% to $40.00.

This leaves the pizza chain operator’s shares within a whisker of their 52-week low.

Is it time to snap up Domino’s shares?

This latest decline has left Domino’s shares trading at under 26x estimated full-year earnings. I think this is an attractive price to pick up the company’s shares and provides a compelling risk/reward.

Especially when even the most bearish brokers have price targets beyond this. A note out of Citi last month, for example, reveals that its analysts have a sell rating and $43.60 price target on its shares.

Considering everything else has remained the same since that note, I wouldn’t be overly surprised if a change of recommendation is in the works. After all, even this sell recommendation has potential upside of 9% excluding dividends.

Speaking of which, the broker consensus for FY 2018’s dividend currently stands at $1.16 per share. This equates to a dividend yield of just less than 3%, making Domino’s a decent option for income investors as well as growth investors.

But have its shares bottomed?

Domino’s is a target of short sellers and remains one of the most shorted shares on the local market with short interest of 16.4%. They appear to be betting on Domino’s falling short of expectations and missing its guidance again in FY 2018. Heavy insider sales haven’t helped matters, either.

This could potentially weigh on its share price performance for a little while to come and even drag it lower.

But ultimately, I believe investors that are prepared to play the long game will be rewarded handsomely.

This is because Domino’s has ambitious, but very achievable, plans to almost double its store network over the next six to seven years. At the same time, management aims to leverage technology to widen its margins even further.

If it delivers on both of these plans then I see no reason why its earnings wouldn’t more than double during the period and its share price could easily follow suit.

In light of this, I think Domino’s could be a top long-term investment today alongside industry peer Collins Foods Ltd (ASX: CKF) and would be a great alternative to the embattled Retail Food Group Limited (ASX: RFG).

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. 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 Scott Phillips.

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