Domino’s Pizza Enterprises Ltd [ASX:DMP] shares made a comeback this morning after dropping by almost 9% to $49 a share following downgrades. The share price currently stands at $49.03.
Both Citi and Credit Suisse downgraded the popular pizza chain yesterday to a sell value even after recent share price gains. There have also been concerns over franchise operations in recent months.
Why did Domino’s share price drop so suddenly?
Domino’s faced a sudden backlash after investors hastily dumped shares following the downgrades.
Analysists likely made the call on the back of a federal parliamentary inquiry into the franchise culture, rising labour costs and uncertain growth in the Asian and European markets.
The share price has also come under pressure with reports of tighter wage margins, as well as allegations last year of wage fraud and visa scams used to exploit Domino’s workers at 733 Australian stores.
The franchise has suffered further loses after questions have been raised about its capacity to meet its 2019 guidance, with some investors engaging in a selling spree and short selling.
What does this mean for Domino’s future?
Though it appears risky in light of the short interest going on, it may be that Dominos can deliver on their investment in the long term and even exceed expectations.
Dominos has plans to double its franchise network internationally over the next few years. In addition to this, Dominos’ management are looking into ways of bringing greater use of technology and innovation into the business, such as the use of driver trackers and even a robotic delivery unit.
These plans could lead to further growth in the long-term, provided investors are willing to stick with the investment. Despite yesterday’s fall, Domino’s share price has gained 32.51% over the last three months.
Editor, Money Morning
PS: If you want to lay down a little money on the hottest corner of the ASX right now…but you don’t know your way around the small-cap sector…this report is for you. Get access now to our free report ‘Top Three Small Cap Stocks 2018’.