While the recent volatility has been disappointing, one positive is that it has dragged a number of growth shares down meaningfully from their recent highs.
One ASX growth share that could be in the buy zone now is Domino’s Pizza Enterprises Ltd (ASX: DMP).
This pizza chain operator could be a great option for growth investors. Since the Domino’s share price hit a record high of $115.97 in February, it has pulled back by approximately 25%.
This appears to have left its shares trading at an attractive level for long term focused investors. This is due to its bold expansion plans, strong market position, and long track record of same store sales growth.
In respect to its expansion plans, at the end of the first half of FY 2021, Domino’s operated a total of ~2,800 stores across the ANZ, European, and Japanese markets.
It is aiming to grow its network to ~5,500 stores in these markets alone in the coming years. There’s also a reasonably high chance that the company could expand into other markets, giving it an even larger runway for growth. In fact, with its half year results, management stated that it “remains active in pursuing suitable Domino’s acquisitions.”
One broker that is positive on the company is Goldman Sachs. A recent note out of the investment bank reveals that its analysts have put a buy rating and $112.60 price target on its shares.
Based on the current Domino’s share price, this implies potential upside of over 30%.
Why does Goldman think the Domino’s share price is good value?
There are a number of reasons the broker is a fan of Domino’s. One of those is its growth potential in the European and Japan markets.
It commented: “Although short term performance has been positively impacted by the pandemic, DMP is in an increasingly strong position as it builds on recent momentum and takes advantage of opportunities in the market. We forecast both Japan and Europe to deliver significant store and earnings growth over the next three years, amounting to 24% and 23% EBITDA CAGR to FY23.”
Goldman expects this to lead to net profit after tax of $197.5 million in FY 2021, $241.8 million in FY 2022, and $284.6 million in FY 2023.
Based on this, the Domino’s share price is changing hands for 26x FY 2023 earnings. Goldman believes this represents good value given its current growth profile.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.