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

This market darling's shares have been downgraded…

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

asx pizza share price represented by hand taking slice of pizza

Image source: Getty Images

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.

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.

More on Broker Notes

Woman and man calculating a dividend yield.
Broker Notes

Buy, hold, sell: REA, Northern Star Resources, Suncorp shares

Two experts share their views on three ASX 200 shares.

Read more »

Two female executives looking at a clipboard together.
Broker Notes

Buy, hold, sell: Centuria Industrial REIT, Endeavour, Wildcat Resources shares

Experts share their views on the lithium miner, hotels operator, and industrial ASX REIT.

Read more »

A group of five engineers wearing hard hats and some in high visibility vests raise their arms in happy celebration atop a building site with construction and equipment in the background.
Broker Notes

Why this $1.4 billion ASX All Ords mining stock is tipped to jump 30%

A top wealth manager forecasts more than 30% returns from this ASX mining stock.

Read more »

A man in a business suit sits at his desk with a laptop and smiles broadly in an office setting, giving an air of optimism and confidence.
Broker Notes

Buy, hold, sell: Bank of Queensland, Xero, PLS Group shares

Let's check out some new ratings on ASX 200 shares today.

Read more »

Piles of increasing coins on Australian $100 notes.
Broker Notes

3 reasons to buy this rebounding ASX 200 dividend stock today

A leading analyst expects the rebound in this ASX 200 dividend stock has legs.

Read more »

Excited couple celebrating success while looking at smartphone.
Broker Notes

Where to invest $5,000 in Australian shares now

Brokers rate these shares as buys. Here's why they could be top picks.

Read more »

Smiling man sits in front of a graph on computer while using his mobile phone.
Broker Notes

Experts name 3 ASX shares to buy this week

These shares have been given the thumbs up by experts this week. Let's find out why.

Read more »

Business people discussing project on digital tablet.
Broker Notes

Buy, hold, sell: Endeavour, JB Hi-Fi, and New Hope shares 

Bell Potter has given its verdict on these shares following their results.

Read more »