The Domino’s Pizza Enterprises (ASX:DMP) share price has made a miraculous recovery in Tuesday afternoon trade, losing only $1.66 or 3.2 per cent to trade at $50.76.
It was much worse earlier today, with Domino’s shares down 13 per cent as the market looked straight past the company’s record profit to focus on the miss versus expectations and the relatively modest FY19 outlook.
Domino’s missed on just about every one of their own FY18 targets.
Source: Company presentation
Looking ahead to FY19, Domino’s are guiding to earnings growth of between around 10 and 20 per cent.
At the top end of that range, you can justify Domino’s shares trading on a lofty 32 times earnings.
But the market is rightly sceptical, given Domino’s has just over-promised and under-delivered on its FY18 results.
The market is short-term in its nature, focusing on next year’s results.
Ever the cheerleader, CEO Do Meij is looking further afield, to a Domino’s Pizza with 4,650 stores by 2025, up from 2,400 now. Acquisitions have the potential to juice the number even higher.
Get anywhere near those goals and even with Domino’s shares trading on a P/E of 32, any simple back of the envelope calculation can see how the shares can easily double or more over the next 7 years, a return that would soundly beat the S&P/ASX 200 index.
There will be plenty of unwanted anchovies along the way as Domino’s misses or beats its own short-term goals.
Earlier this year the Domino’s Pizza share price fell below $40 after it warned on profits.
Investing is about putting the odds in your favour. At $40, Domino’s shares would trade on a P/E of around 25 times earnings. Not cheap, but cheaper, and certainly a bigger margin of safety than is currently on offer.
In the meantime, sit back and enjoy the pizza. Let the share price come to you. As Warren Buffett famously says, you don’t have to swing at every pitch.