The upcoming soccer world cup that kicks off next week in Russia could score a big goal for Domino’s Pizza Enterprises Ltd. (ASX: DMP) that could give its share price another boost.
Shares in Domino’s are already in recovery mode with the stock adding 2.1% to $53.84 this morning – taking its three-month gains to an impressive 35% when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is barely 1% ahead.
There’s still room left for the stock to run ahead too and the outcome from the 21st FIFA World Cup could deliver a nice earnings surprise for the ASX-listed Domino’s as it owns stores in a number of European countries.
“We believe a solid European result is key to DMP hitting FY18 guidance for ~20% NPAT growth (~18% including buyback),” said UBS.
“To assess the opportunity, we have looked at the impact of past major world football events as an indicator for the upcoming Russian tournament.”
The broker believes the world cup is a positive for pizza sales but the real kicker would depend on the performance of the French and German teams, as well as the weather.
No prizes for guessing which European countries our Domino’s is in and UBS is becoming increasingly confident that management will meet its ambitious profit target.
This target has been a point of contention as many experts didn’t believe the company could achieve this when it was announced a few months ago.
This has been a key factor behind traders shorting the stock and Domino’s is the second most shorted company on the ASX, according to the latest data from ASIC which is always a week behind.
The performance of its European division is key to Domino’s near-term share price performance. UBS estimates that sales in the EU will contribute to around half of management’s expected net profit growth target in the current half of this financial year.
But Domino’s isn’t without risks. There’re ongoing worries about the impact of aggregators like Uber Eats and Deliveroo on the business.
Domino’s used to have a big edge over other fast food due to its advanced delivery system but aggregators have levelled that playing field and has even allowed small mum-and-dad pizza joints to reach the delivery market.
Having said that, I think Domino’s looks to be a better bet than its peers, which includes multi-brand franchisor Retail Food Group Limited (ASX: RFG) and Kentucky Fried Chicken franchisee Collins Foods Ltd (ASX: CKF).
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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 Scott Phillips.