Is Domino’s Pizza Stock About to See a Repeat of Summer Earnings?

Shareholders in Domino’s Pizza (NYSE: DPZ) stock are likely to see the stock price climb when the company posts earnings on October 14. The fast-food chain is expected to post earnings per share (EPS) of $3.08 on revenue of approximately $1.12 billion. The latter number would be a 9% increase from the prior quarter. And the earnings number would be a year-over-year increase of more than 25%.  Underlying it all is expected to strong growth in same-store sales. 

That sets DPZ stock up to do what it did in July when it last reported earnings. On July 22, the company’s share price climbed 14% on the strength of its earnings. And with the stock price sitting about 6% below the consensus estimate of analysts, it’s likely that investors could be treated to a similar gain.  

More Than Just a Pandemic Play 

The strength of the company’s projected revenue becomes clear when you view it in context of the last two years. Revenue of $1.12 billion would be about 4% higher on a year-over-year (YOY) basis. And, it would be a 23% increase from the same quarter in 2019. That’s a much more telling indicator that the strength of the company’s business model is not just about delivering to a captive audience.  

But putting the likelihood of an earnings beat aside, there are reasons to believe that Domino’s is about to deliver for investors. For starters, the company is making investments in technology that make it easier for customers to order and receive their orders. 

Secondly, while the company’s store footprint may be reaching a saturation point in the United States, there’s still plenty of room for international expansion. And investors will be paying close attention to that when the company reports.  

Availability is the Best Ability 

There’s a saying in sports that the best ability is availability. I hadn’t ordered from Domino’s in some time largely because I live just outside of their delivery area. However, about two months ago, the disparity between consumer demand and the labor shortage was made acutely clear to me. On a particularly busy day, pizza was an easy out for dinner. However, on this weekday evening at approximately 7:00, all the “local” pizza establishments were closed due to staffing shortages.  

That left Domino’s as the only option. Ok, you say that’s just a coincidence. Perhaps it was. But it also showcased the company’s drive-through pick-up lane which allowed me to pick up the pizza without leaving my car (not that it would have been a big deal). Not surprisingly, Domino’s considers drive-through one of its key growth drivers. As a sample size of one, I have to agree. That feature alone put Domino’s back in my consideration set for future orders. Which brings to mind another saying in sports, never let them see your backup.  

Is Domino’s Overvalued? 

The company is sporting a P/E ratio of 38.24. That’s the highest since the pandemic began. In fact, that’s the highest P/E ratio the company has sported in over three years. However, when compared with the company’s P/E ratio over the last 15 years, it’s not excessive. And the company is doing this at a time when it is posting both revenue and earnings growth.  

Buy DPZ Stock Now and Hold it For Future Growth 

According to MarketBeat, the outlook of 24 analysts gives DPZ stock a consensus hold rating. This seems like a fair assessment. Despite the likelihood of rising revenue and earnings, the company is not immune to the supply chain challenges. And it is also dealing with higher labor costs.  

The earnings report will give investors an idea of how likely it will be for Domino’s to pass those costs along to customers. With cooler weather coming for most of the country, and a full slate of professional sports on the calendar, it’s setting up to be a strong quarter for Domino’s and, by extension, DPZ stock. But with a price target of around $506, the stock might still have some resistance above that level.