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Why Domino’s Pizza Enterprises Ltd (ASX:DMP) shares are sinking lower today

The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price looks likely to end the week with a day in the red.

In late morning trade the pizza chain operator’s shares are down 3.5% to $48.63.

Why are Domino’s Pizza Enterprises’ shares sinking lower?

With no news out of the company today, this decline is likely to be related to a softer than expected second-quarter result from its US parent.

For those that are unaware, the locally listed Domino’s Pizza has the rights to operate the brand in Australia and New Zealand, Japan, and parts of Europe. At the last count almost a third of the international sales of the US-listed Domino’s were generated by Domino’s Pizza Enterprises.

Because of this, the results of the US-listed Domino’s can be used as a rough guide for the locally listed business.

While the second-quarter was still strong, it fell short of the market’s expectations.

According to CNBC, comparable sales growth at domestic company-owned stores came in a 5.1% compared to expectations of 6.4%. There was a miss on international sales as well, with comparable sales at international franchised stores growing 4.0% compared to expectations of 5.3%.

This appears to have some investors concerned that Domino’s will indeed fall short of its guidance in FY 2018. Short sellers will no doubt be licking their lips, a massive 15.1% of its shares were held short earlier this week.

Should you panic?

With a little over three weeks until Domino’s releases its highly anticipated FY 2018 earnings, the confessions season window is closing fast and there’s been no noise out of the company.

I would have thought that management would know by now whether it was going to fall short of its guidance, which could be an indication that its results are going to be in-line with expectations.

So with the market seemingly expecting a miss, I believe there could be some serious upside for its shares if it meets its guidance.

But I wouldn’t buy its shares purely on the back of this. Instead, I would buy its shares with a long-term view because of its long-term growth plans to double its store network and expand its margins.

I don’t know where its share price will be in a month, but in five to seven years I feel very confident that it will be significantly higher because of these plans.

Another couple of buy and hold options in the industry could be Collins Foods Ltd (ASX: CKF) and Freedom Foods Group Ltd (ASX: FNP).

Not keen on Domino's? Then take a look at these mid cap growth stars.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited, Domino's Pizza Enterprises Limited, and Freedom Foods Group 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.

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