Dominos Pizza Inc (DPZ) Pre-earnings Analysis
Chart done on daily timeframe. Dominos seems to be in a league of their own when it comes to the restaurant industry as it closes in on its 2020 highs. The company’s last earnings drove it to a new 52 week high around 508.00, which it is still hovering around coming into next week’s earnings. The company’s performance can be attributed to their consistent ability to meet revenue and profit targets, but profitability is set to decline this quarter per analyst estimates. Quarter EPS is expected to decline to 3.36 per share from last quarter’s 4.48 per share, which means that even if DPZ meets the estimates, it likely won’t be enough to move the needle or justify the current valuation. DPZ is trading at a price to earnings ratio of 33x, significantly higher than the industry average of 24.7x, which means it has room to the downside if they don’t surpass 4.48 per share. The company’s balance sheet has far more liabilities than assets, placing them in a risky category of businesses.
All in all, DPZ is a decent company, but its current valuation is hard to justify. Chances are it will correct on these earnings unless they post a big profit beat.
Option chain analysis
Options expiring on May 3rd currently reflect an implied volatility reading of 55%, which translates to about a $31 move from the underlying stock. The direction of that move will depend on the results of the earnings.