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Will the Domino’s share price continue to surge in August?

Will pizza be the key to outperformance in August?

Judging by the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price gains, that could be the case.

Domino’s shares are up 5.0% in the last month while the S&P/ASX 200 Index (ASX: XJO) has edged 0.2% lower.

Why the Domino’s share price is soaring

There have been no major announcements from the Aussie food company since mid-April. However, that hasn’t stopped the Domino’s share price continuing to climb.

One big factor has been Domino’s ability to continue operating despite coronavirus restrictions.

Investors seem to be pricing in resilient future earnings, with Domino’s shares jumping 40.2% to $75.52. In fact, Domino’s is currently trading just 1.7% behind its 52-week high.

I think strong momentum and a lack of announcements make the company’s August earnings result one worth watching.

It’s been a long time since we’ve got an insight into Domino’s financials and operations. That means the August 19 full-year result could help re-calibrate expectations for the Domino’s share price.

Is the Domino’s share price a buy?

I think the Victorian lockdown could be good for Domino’s earnings. There are tight restrictions in stage 4 but food delivery is not one of them.

That means Domino’s earnings could be resilient despite economic hardship in many industries.

I also think it’s in a better position than many ASX 200 shares to pay dividends in the near future.

The one concern I would have is the lofty valuation. Domino’s shares trade at a price-to-earnings (P/E) ratio of 49.1 and just shy of its 52-week high.

That means you’re investing a lot of money for little immediate return. If you believe in the long-term growth story, that may not be a huge concern.

However, value investors may be turned off buying Domino’s shares.

Foolish takeaway

The Domino’s share price has had a strong year but I’m not sure the company’s shares are particularly cheap.

If you’re willing to wait, I think the August earnings result could provide a good reset point for the ASX share’s fair valuation.

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Motley Fool contributor Ken Hall 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.

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