The Domino's Pizza Enterprises Ltd (ASX: DMP) share price performance has been very disappointing. Since mid-January, it's down by 26% and has sunk more than 70% from 10 September 2021. It has been one of the worst-performing S&P/ASX 200 Index (ASX: XJO) shares in the last two and a half years. Can it regain those former lofty heights?
It won't be an easy journey if it is to achieve that previous level. The $161 peak was achieved when interest rates were almost 0% and during the COVID period, when there was very strong demand for delivered food.
Since then, it has decided to exit the Danish market, and overall demand in areas of its markets is not as strong as it was.
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Early signs of recovery
To excite investors, the company needs to start reporting growth again.
A company's management will always look on the positive side of things, but I think the outlook commentary in the FY24 first-half result was positive.
In the first seven weeks of the second half of FY24, total network sales were up 3.7%, with same-store sales growth (SSS) of 3%. The ANZ region saw same-store sales growth of 8.4%.
If the company can deliver an overall compound annual growth rate (CAGR) of SSS of at least 3% over the long term, I think its organic growth will be solid and help propel the business higher.
Domino's said its new organisational structure is delivering increased efficiencies and savings for the network.
The company's established markets "continue to identify new approaches to add incremental customers, and are continually working to add new occasions and growing existing day parts."
Large long-term goals
The business has confirmed its long-term network store goals, which could be invaluable for boosting the Domino's share price in the future.
It wants to reach 3,000 Asian stores by 2033, which would be roughly doubling the store count from here.
Domino's has a goal of 1,200 stores by 2028, which would be 1.3 times its current size.
For the European market, Domino's wants to get to 2,900 stores by 2033, which would be a doubling of the size of the current network.
Overall, the company is aiming for 7,100 stores by 2033, which would be 1.9 times its current size.
Domino's said store expansion is important to the growth of franchise partners and to the ASX share, but relies on improved unit economics.
It would be quite logical for a doubling of the network size to at least double the Domino's share price. Operational leverage can lead to profit rising faster than revenue and network growth.
Profit projection
The broker UBS thinks Domino's can roughly double its earnings per share (EPS) between now and FY28. Forecasts that far away shouldn't be relied on closely, but they give a general idea of the direction profit could go.
If Domino's can achieve the forecast FY28 profit, the Domino's share price is valued at 16 times FY28's estimated earnings.
It could take longer than FY28 for the business to get back to $160, but it doesn't need to get back to that level to do well. A doubling of the share price in five years would be a very commendable return. At this lower valuation, after the declines, I think it could be a longer-term turnaround opportunity.
