One of the country’s largest pizza chains that’s been a big winner for investors over the past several years may be set for a massive selloff. Since May 2011, Domino’s Pizza (DPZ) has shot up more than 400% in price, trading at an all-time high of $140.80 on April 20. But that is about to change, according to a recent report by GeoInvesting.
Dan David, co-founder of GeoInvesting, told Yahoo Finance’s Seana Smith that the recent dip in the stock is just the beginning, and a "perfect storm" of factors could trigger a big pullback.
“We looked at Domino’s as a high flyer, a hedge fund darling, and tried to decide what they’re doing better than the competition. What we came away with is really, not much,” said David. “Management positions themselves as a pseudo technology company, with its pizza tracker and ordering pizza’s by emoji, but that doesn’t make it a technology company. They don’t deserve a technology multiple.”
GeoInvesting initiated a short position on the stock around $135 per share because of the company’s debt. At $2.2 billion, David says it can’t sustain that debt without refinancing down the road. But that’s not the only headwind facing Domino’s Pizza. Wage increases and higher commodity prices could prove challenging for the company.
“Oil is going to go up. Pork and cheese are at or near three-year lows. Also, historic wage increases coming our way are going to affect them,” said David. “As the wage increases become more prevalent, this is going to be a problem for them.”
In a suit filed Monday night, New York Attorney General Eric Schneiderman accused Domino’s Pizza and three of its franchisees of underpaying workers at least $565,000 at 10 New York locations. And this is not the first suit filed by New York against Domino’s. The attorney general’s office has settled cases with 12 other Domino’s franchisees who agreed to pay about $1.5 million.
David says he expects wage violations to continue to be a problem for them. As for the next opportunity to buy Domino’s Pizza’s stock, he plans to reevaluate when shares are trading at $80.
Domino’s Pizza declined Yahoo Finance’s request for comment on GeoInvesting’s report.
