Domino's Stock Fundamentals Are Not Looking Hot Right Now

Shares of DPZ have fallen 35% in 2022 but may still be a good distance from its bottom

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Domino's Pizza, Inc. (NYSE:DPZ) is one of the largest pizza chains in the world, with a significant business in both delivery and carryout pizza. DPZ operates more than 19,000 stores in over 90 markets. The restaurant's system is comprised of independent franchise owners who accounted for 98% of Domino's stores as of the end of the first quarter in 2022. At last glance, DPZ is trading up 3.3% at $373.05.

In mid-May, Domino's Pizza announced a partnership with Netflix Inc (NASDAQ:NFLX) to launch DPZ's “mind ordering app,” leading up to the season four premiere of 'Stranger Things' on NFLX. The AI-centric app uses facial recognition and eye-tracking technology to allow users to order pizza by making certain facial expressions and head movements.

Domino’s Pizza stock has dropped about 16% year-over-year and DPZ is currently trading down 36% since peaking at an all-time high of $567.57 at the end of 2021. Shares of DPZ have also dropped 35% year-to-date. However, Domino's stock price has increased 3% over the past month and has recovered 12% since bottoming at a 52-week low of $321.15 in early May. Domino's Pizza also offers a dividend yield of 1.22% with a forward dividend of $4.40.

Nonetheless, Domino’s stock valuation metrics suggest DPZ is overvalued. Domino's stock trades at an inflated forward price-earnings ratio of 25.64 and a price-sales ratio of 2.84. Moreover, the pizza business comes with a significant level of risk. DPZ currently owes $5.28 billion in total debt and hold just $164.96 million in cash on their balance sheet, which could hurt their long-term growth and profits.

The good news for buyers is, DPZ tends to outperform options traders' volatility expectations. This is per the equity's Schaeffer's Volatility Scorecard (SVS) of 90 out of 100.

 
 

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