In anticipation of Domino’s Pizza, Inc. DPZ’s Tuesday earnings report, the Rev. Emmanuel Lemelson told Benzinga company shares — now trading around $186 — are “worth no more than [about] $60.”
“While the firm's fundamental business has not changed, it's capitalization structure has changed radically in recent years, [and] this will not end well for DPZ investors,” Lemelson said.
He noted that Domino’s generally inconsistent EPS will shake investor confidence in the stock, which — as Papa John’s Int’l, Inc. PZZA demonstrated — is vulnerable to even minimal earnings misses.
“PZZA’s precipitous fall at the slightest miss is a reflection of how pizza stocks are certainly in a bubble, having begun their departure from reality in 2012,” Lemelson said. “DPZ is extraordinarily exposed to any ‘bump in the road’ in earnings, that will inevitably will lead to a change in sentiment (its capitalization structure is far worse than that of PZZA) and is truly an unusual issue amongst public companies, since buyers of the common equity actually are buyers of the company's growing debt.”
“Slapping the word ‘technology’ on the story sounds nice and has helped drive the stock but does nothing to change the reality of the firm’s financial showings, in particular its balance sheet, which leaves common shareholders exposed to extraordinary risk,” he said. “Their so-called ‘technology’ is neither defensible nor proprietary, nor does it enhance the intrinsic value of the company. This is a pizza company simply adapting to the communication standards of its time, nothing more.”
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.