Domino's Pizza Enterprises Ltd (ASX: DMP) shares have been major under-performers in the last twelve months.
Whilst the benchmark S&P/ASX 200 Index (ASX: XJO) has set a series of new highs in 2024, shares in the pizza giant have languished.
They are currently swapping hands at $29.56 each, down nearly 40% in the past year. Owning Domino's shares over this time would have meant a 32% disadvantage to the benchmark.
Yet, the stock still trades on a price-to-earnings (P/E) ratio of 44.05 times, meaning investors have to spend nearly $45.00 for just one dollar of the company's earnings.
Domino's shares lost 10% in the past week of trading, and now investors are surely left wondering if this presents a buying opportunity.
Let's dive into what the experts say about the prospects for Domino's Pizza shares, and whether they present compelling value or not.
Domino's Pizza shares under pressure
Last week, Domino's announced the closure of several hundred stores in France and Japan. This led to a significant drop in its share price.
Despite this setback, Goldman Sachs upgraded Domino's to a buy rating. According to my colleague James, the broker believes that the worst might be over and that the risk/reward is now skewed positively.
Goldman slapped a price target of $42.20 on the stock, indicating a potential upside of 30% from the current price.
[W]e believe management's focus on franchisee profitability through closure of 80/20-30 locations in Japan/France will help to material improve the quality of the network and help franchisee profitability.
With COGS [cost of goods sold] inflation moderating and the company focusing on the execution of quality stores, we expect that store growth will be restored following a digestion period.
For FY24, Goldman projects sales of $4.2 billion on pre-tax earnings of $210 million for the entire group.
The broker also projects dividend yields of more than 3% over the next three years. In my view, these projections make Domino's shares worth looking at for income-focused investors.
Long-term growth potential?
It hasn't been easy for Domino's Pizza shares in 2024. The COVID-19 market drove the stock to all-time highs of around $162 per share in 2021.
It will be difficult to return to that mark anytime soon.
The highly visible listing of quick service restaurant (QSR) rival Guzman Y Gomez Ltd (ASX: GYG) didn't help the situation either, in my view.
However, Goldman's analysis suggests that if the company improves its store unit economics and digital capabilities, it could see a rebound in its market position and financial performance.
It says the company is "focusing on execution of quality stores" and that this could be reflected in market prices.
The consensus of analyst estimates agrees. According to CommSec, the consensus rating is a buy.
As for the distribution of this rating, it is made up of nine buys, four holds, and three sell recommendations.
Domino's shares takeout
Despite the recent share price decline, experts believe that Domino's Pizza shares may offer a compelling buying opportunity.
With a strategic shift in focus, attractive valuation, and promising dividend yields, the company could be positioned for a turnaround.
But only time will tell.
At this point, from my perspective, it's too difficult to see a bottom.
