Why this broker downgraded the Domino’s (ASX:DMP) share price

This market darling’s shares have been downgraded…

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The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price is pushing higher on Tuesday.

In early trade, the pizza chain operator’s shares are up 1.5% to $157.80.

This means the Domino’s share price is now up 79% since the start of the year.

Can the Domino’s share price keep rising?

Unfortunately, the Domino’s share price could be fully valued now according to one leading broker.

According to a note out of Bell Potter, its analysts have downgraded the company’s shares to a hold rating with a $155.00 price target.

The broker is a big fan of the company and believes it is well-placed for growth over the medium term. This is due to its significant organic growth prospects, with management aiming to more than double its store network to 6,650 by FY 2033 across existing territories.

Bell Potter also expects the company to make acquisitions in adjacent markets, expanding its store network further.

However, it felt its valuation was getting stretched after its recent run. For example, it notes that the Domino’s share price was trading at 50x estimated FY 2023 earnings and 40x estimated FY 2024 earnings prior to today’s session.

Bell Potter commented: “DMP has been one of our preferred stock picks through the pandemic amongst our consumer facing coverage. Following DMP’s strong share price performance, we recently removed DMP as a preferred pick in our retail sector note dated 3 September.”

“With the stock trading at FY23e/FY24e PE ~50x/~40x, we have also now downgraded our rating from Buy to Hold with an unchanged 12-month price target of $155.00,” the broker added.

All in all, the team at Bell Potter appear to believe that investors would be best waiting for a decent pullback in the Domino’s share price before considering an investment.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.

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