The Domino's Pizza Enterprises Ltd (ASX: DMP) share price is rebounding slightly on Thursday after a major selloff yesterday.
In afternoon trade, the pizza chain operator's shares are up 1.5% to $55.23.
Though, that doesn't hide the fact that they are still down almost 23% over the last two trading sessions.
Why the selloff?
Investors were selling down the Domino's share price following the release of the company's half-year results.
Although a sizeable profit decline was expected by the market, a sudden deterioration late in the half set alarm bells ringing.
For the six months ended 31 December, Domino's reported a 1.2% increase in sales to $1.97 billion but a 21.3% decline in earnings before interest and tax (EBIT) to $113.9 million.
Management advised that this was driven by difficulties battling inflationary pressures. Domino's thought it could overcome these pressures by increasing prices, but consumers pushed back, particularly in Europe.
Another cause for concern was its slower than expected store rollout. This means it is looking unlikely to deliver on its store expansion plans this year.
Is the Domino's share price a bargain buy?
The team at Morgans has analysed the company's result and, while very disappointed, believes the selloff has left the Domino's share price trading at an attractive level.
Commenting on the company's performance, the broker said:
Just when it appeared DMP was starting to come through the various headwinds that have affected it in recent months, the 1H23 result provided an unwelcome reality check. Revenue was only 0.7% below our forecast, but margins failed to recover at the pace we expected and EBITDA was 4.1% below our forecast and 5.9% below consensus at $182.3m. […] DMP opened only 79 organic new stores in 1H23 and said it may miss its 8-10% network expansion target in FY23.
Nevertheless, given the sizeable drop, the broker sees plenty of value in the Domino's share price even after cutting its price target. It now has an add rating and $70.00 price target on its shares, which implies potential upside of 27% for investors. It concludes:
Despite the evident disappointment of the 1H23 result, we had anticipated this result could be a negative one for sentiment. We didn't expect the shares to fall as much as they did, however, and even with significantly lower earnings estimates for FY23 and FY24 and a significantly lower target price, there is enough upside to our target to keep us on an Add. But our faith is shaken.
