Although it has recovered slightly now, at one stage the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price had tumbled as much as 5% to $48.30 in morning trade.
At the time of writing the pizza chain operator’s shares are down around 2.5% to $49.60.
Why did Domino’s Pizza Enterprises’ shares sink lower today?
With no news out of the company today, it looks as though the half-year result of its UK equivalent has weighed on investor sentiment.
The UK-listed Domino’s Pizza saw its shares fall 10% overnight after reporting a surprise fall in profits. Statutory profit fell 9.7% to £41.7 million in the first half of the year, compared to £46.2 million in the prior corresponding period.
While much of the blame for this weak result has been placed on its investment in the Scandinavian market, there was a slowdown in same-store sales growth in the UK. Same-store sales growth slowed to 4.7% in the second quarter from 7% in the first.
This appears to have led to concerns that the ASX-listed Domino’s could be suffering from weaker trading conditions in Europe as well.
But one broker that isn’t concerned is Morgan Stanley. It believes that the UK business has been the drag on Domino’s UK performance and that Domino’s Australia’s businesses in Europe may not have suffered as much from a slowdown as they first feared.
As a result, it has retained its outperform rating and $55.00 price target. This price target implies upside potential of approximately 11% for its shares.
Should you invest?
With its highly-anticipated full-year results just a matter of a few days away, I think it would be prudent to wait for their release before investing.
But whatever happens next Tuesday, I feel Domino’s would be a great long-term buy and hold investment. If its shares fall next week on a poor result, I’ll certainly be interested in picking up shares on the cheap.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.