The third quarter results are already out and Domino’s Pizza (DPZ) has made major gains in their earnings this quarter. DPZ, a member of the Long-Term Leaders group of IBD (Investor’s Business Daily) gained 33% YTD (Year-To-Date) vis-à-vis a gain of 7.6% for S&P 500.
However, institutional investors who held Domino’s Stocks are selling them off now. This comes in spite of the strong gains shown by DPZ in the third quarter. This one is DPZ’s second straight double-digit sales growth and earnings quarter. But investors are confused as institutional investors are walking the opposite road.
So, is it the time to buy or not buy Domino’s stocks? Let’s crack into it.
Domino’s Stocks: Higher Costs
The Domino’s stocks Q3 earnings show a 21% increase making $2.49 per share. However, this is below the Zacks Investment Research estimate that marked the company’s earnings at $2.75 a share. Revenue for Domino’s stocks increased to $967.72 million, that is 18% as opposed to the forecasted estimate of 4945.59 million.
Even though this is the case, what the stock market disliked was higher costs. The operating margins of the company dipped from 38.5% to 37.4% within a year. This dip came from investments required during the pandemic like PPE gear, extra pay, cleaning supplies and so on. Domino’s CEO announced that this trend is likely to continue beyond 2020.
In the recently released DPZ’S Q3 report, a 78 cents per share quarterly dividend has been added for investors. It is payable by December 30th.
Domino’s Stocks: “Fortressing” Strategy
Another thing that bothers Wall Street is Domino’s “fortressing” tendency. To compete with its food delivery counterparts like Postmates, UberEats and so on, Domino’s is opening up new stores to decrease customer delivery time. Even though this strategy was useful in February with unprecedented growth in sales of Domino’s stocks, the Q1 earnings prove to be grim.
DPZ announced solid growth in its Q2 earnings report released on the 16th of July with $2.99 per share. This showed a 37% increase based on a year-over-year analysis.
Institutional Investors Selling Domino’s Stocks
Sales growth jumped up by 13% to hit $920 million as opposed to the consensus of $911.5 million. The pandemic had affected international stores sale owing to closures. But Domino’s stocks still ranks 1st within the restaurant sector making it stand ahead of Wendy’s. El Pollo Loco and others.
Domino’s stocks went up to 422.15 in July before it was pulled down. In August, Domino’s stocks tried to get rid of a flat base but a sell-off in September hurt this breakout. DPZ quickly recovered though in late September.
But when the Q3 results came out on Thursday, Domino’s stocks slumped almost 10%. The stock market is going through a bullish moment but Domino’s stocks are not a buy right now. It’s not a good idea to invest in a stock when institutional investors are selling them off.