Why did the Domino's share price just slump to a two-year low?

Domino's has tumbled to a new two-year low. What's happening?

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The Domino's Pizza Enterprises Ltd (ASX: DMP) share price has continued its slide on Wednesday.

In morning trade, the pizza chain operator's shares were down 3% to a new two-year low of $57.24.

This latest decline means the Domino's share price is now down a massive 65% from its 52-week high of $163.65.

Why is the Domino's share price at a 52-week low?

The Domino's share price has come under pressure this year amid concerns over its softening performance.

For example, although the pizza chain reported a 4.6% increase in global sales to $3.92 billion in FY 2022, its profits fell 12.5% to $165 million.

This was driven by significant margin pressures caused by inflationary headwinds. And with inflation not going away in a hurry, investors appear concerned that these margin pressures will continue for a little while to come.

Furthermore, while the company has been raising prices to combat inflation, there are only so many price rises you can give to customers before they start pushing back.

Is this a buying opportunity?

A recent note out of Citi reveals that its analysts are suggesting that investors take advantage of the weakness in the Domino's share price.

Although Citi acknowledges that trading conditions remain challenging, it thinks investors should focus on the company's very positive medium and longer term outlook. It explained:

Our analysis of high frequency data suggests sales growth is accelerating in Japan despite cycling tough comps in the pcp. However, website traffic in other key markets (Europe and Australia) remain weak likely due to cost of living pressures, labour challenges, competition and somewhat questionable execution in France. However, we remain positive on the medium term outlook given same store sales appear on track to turn positive and some inflationary headwinds are moderating. The longer term store rollout opportunity has grown supported by the recent Asian acquisition. We also see further upside potential from additional acquisitions. Maintain Buy.

Citi has a a buy rating and $84.40 price target. This implies potential upside of almost 50% for investors over the next 12 months.

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 Scott Phillips.

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