Why The Domino’s Share Price Rose Today

What happened to the DMP share price?

Domino’s Pizza Enterprises Ltd [ASX:DMP] traded higher today. The entire Aussie market rose on the back of better-than-expected GDP growth, stronger oil prices, and great performances from European and US markets overnight. Overall, Asian markets rose strongly today, largely ignoring the poor Chinese data release yesterday and Moody’s downgrade of outlook on China today.

Why did DMP shares do this?

DMP has been one of the best performing stocks in the ASX100 over the past 26 weeks. DMP is a ‘momentum’ stock with great fundamentals. Market analysts have a ‘Hold’ rating on DMP, forecasting greater top-line growth in 2016 and 2017.

A barrier facing investors is that DMP’s stock has a relatively high P/E ratio. Naturally, investors want to ask the question: how much higher can the stock go? The answer is unclear, but we know it won’t rise forever. However, given the level of P/E of the company, investors need to remain agile.

The company pays a respectable dividend, with a high payout ratio. Sales and EPS growth have both scored double-digit growth in the last five years. The company is also a big spender on capital.

DMP is not terribly leveraged and has plenty interest coverage to ensure liquidity. The company has a good profit margin too. Overall, DMP is a fundamentally strong company. Its share price appreciation has largely reflected that fundamental strength.

What now for DMP?

DMP continues to be on my trading portfolio this week. The weekly performance shows it continues to ride the broad trend of the stock market. A stronger market can benefit DMP; better economic readings, such as today’s, provides a boost to the stock, and the company’s own performance will see it gain some more.

DMP remains a momentum stock with strong fundamentals. However, its high valuation reduces its attractiveness, bringing closer the possibility of a loss of momentum. Investors need to remain agile when investing in DMP.

Ken Wangdong

Emerging Market Analyst, New Frontier Investor

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