Should investors flee from Domino’s Pizza Enterprises?

What happened to the Domino’s share price?

Shares of Domino’s Pizza Enterprises Ltd [ASX:DMP] were down 4.76% yesterday. Looking at the five-day stock chart, it looks like the price jumped off a cliff — and a big cliff at that.

What’s going on with Domino’s share price?

Domino’s is coming in for some seriously harsh treatment from the mainstream media. They’ve been hammered from pillar to post about the way the company has been managing everything from their franchisees to the way they fight competitors like Pizza Hut on pricing and deals, and even to wages fraud and illegal immigration.

In short, the media are calling this a ‘scandal’ up there with the recent scandals that engulfed 7-Eleven and Caltex. It appears the mass media is waging an all-out war on Domino’s.

What now for Domino’s Pizza?

This kind of press is never good news. And when the ‘scandal’ word starts getting thrown about, you know that there will be law firms kicking down the doors soon enough.

Now that the mainstream has a sniff of blood, they’re going in for the kill. Sometimes the market can absorb these kinds of investigations. But that’s usually if they’re founded on weak or shaky information to start with.

It seems that the floodgates are open, and every day there are new reports of shady activity from franchisees and the business operations of Domino’s. This leaves the obvious question: Is it time to flee Domino’s for good, or will this kind of downward pressure create a fantastic buying opportunity?

Well, on one hand, it seems as though the media pressure will continue. And that’s going to see investors jump ship in the short term. In that situation we would expect to see the stock price trading lower for at least a few weeks while the media coverage continues. But it will ultimately subside as the media look for something else more topical to cover.

You only need to see the downward pressure a ‘scandal’ can have by looking at the stock price of Caltex Australia Ltd [ASX:CTX]. It’s quite possible the same will happen to Domino’s. That means we’d certainly consider steering well clear of Domino’s for the time being. But, at the right time, we also think it will turn again for the better. After all, this is the most dominant pizza company in Australia — and no matter how good or bad the country might be — or might become — people always eat pizza.

If you’re interested to find out more about our views on the most exciting stocks on the ASX, you can access my free report, ‘How to Buy Shares on the ASX’, right here..

Sam Volkering,
Money Morning


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

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