Domino's Pizza Enterprises Ltd. (ASX: DMP) shares have fallen 21% in six months.
Domino's Pizza Share Price
As can be seen from the chart above, it has been a rollercoaster ride for Domino's shareholders.
Is this Domino set to keep falling?
Last week, I set the tone for investors by saying that even at today's seemingly discounted prices I would not take a slice of Domino's Pizza shares. Indeed, despite falling 21% in six months, Domino's shares still trade at 41 times next year's profits. That does not leave much room for error.
Based on that information alone, I'd be cautious buying Domino's shares.
But then there are some who believe Domino's may be at risk of a significant rise in costs if it is found to have been underpaying employees.
The Australian Financial Review reported earlier this week:
"The Fair Work Ombudsman is investigating Domino's Pizza franchisees across the country over allegations of underpayments and claims of workers forced to do unpaid overtime."
When I reached out to the Fair Work Ombudsman to confirm if they were investigating Domino's for alleged underpayments or free work hours, I got this response:
"I can confirm that the Fair Work Ombudsman is currently conducting inquiries in relation to this matter. It is not appropriate to provide further comment at this stage."
I'm not sure if I would call that an 'investigation' in a colloquial sense, but it would seem that they are looking into it at the very least. I guess we'll wait and see what happens.
Foolish Takeaway
There's a saying in finance that sometimes the baby gets thrown out with the bathwater, implying that shrewd investors can unearth gems when shares are sold off for the wrong reasons.
However, I'd say that statement and its implication is overused.
In this instance, I think Domino's is a great business but it is not worth what the market says it is right now. So, sure, if the selloff continues I'd be interested. But at today's prices there still appears to be too much risk to the downside.
