NEW YORK - Dominos Pizza continues to be the most overvalued stock on the street the current price is unfathomable, likely even if the company had a good financial position but it does not. It easily has the worst financial position on the market for a profitable company.
The company has $1.45 billion of debt and $83 million of cash or net debt of $1.37 billion. The company has earned $74 million year to day and pro-forma maybe the company earns $100 million for earnings growth of 14%. Impressive right? Ya it is not terrible but not exceptional either. Yet the company is now valued at 20 times earnings. Even if the company continues its growth of 14% and we assumed no discount rate it would take the company 8 years to pay off its debt and maybe then the company would deserve a value of $2 billion. The company has a shareholders deficit of $-1.2 billion. Imagine you had a debt of $1.5 million, you owned a house worth $300,000 and made a salary of $100,000. Would you be able to sleep at night. Apparently Domino's Pizza shareholders sleep great. They sleep so great that they continue to value this stock higher into absurdity.
If this was you, a bank would bankrupt you into absurdity. As an individual if you were 30 you may hope by the time you retire to have a couple hundred thousand if we discounted that you're worth close to zero today! Certainly you're not worth 2 million. Imagine if you were an individual and could sell yourself to the highest bidder in this terrible financial condition for $2 million but you would forgo making a day of earnings from this job for the rest of you're life. You would probably accept that deal instantly anything to get out of your messy situation. Then you could take that $2 million and put it into say a McDonald's franchise and make a hundred thousand or so a year. Would you not take that switch?
Well the market thinks Domino's is worth that, $2 billion. We recommended selling Netflix for such a long period of time. People relished how incorrect we were when the stock hit $300. However I never once raised my target price on Netflix I kept it at $90, a price I have had it at for over a year. We averaged our short position at $220 a share on Netflix. (To read our Netflix report click on reports). Domino's is now twice as overvalued as Netflix.
Well the market thinks Domino's is worth that, $2 billion. We recommended selling Netflix for such a long period of time. People relished how incorrect we were when the stock hit $300. However I never once raised my target price on Netflix I kept it at $90, a price I have had it at for over a year. We averaged our short position at $220 a share on Netflix. (To read our Netflix report click on reports). Domino's is now twice as overvalued as Netflix.
Not only does negative equity make a company less valuable it also makes a company inherently more risky. Since the company only makes $100 million a year: investors should ask where it will get the money to payback its debt. But alas no one cares today, lets worry tomorrow, playing Russian roulette is fun.
The company has a constant bankruptcy risk. Second leverage amplifies risk meaning leveraged companies earnings tend to fluctuate more greatly. Finally Dominos is foolishly buying back its shares at this current ridiculous price. They might as well have thrown $120 million in the garbage.
Dominos is a good candidate for a stock that loses 70 to 80% of its value in the next five years.
Click...Click...Click.
BOOM!
Click...Click...Click.
BOOM!
looks like you are very upset that the price keeps going up . Perhaps you had another short position and it's going wrong . Never Mind, you can't win them all .
ReplyDeleteI don't short i just get upset when worthless stocks rise.
ReplyDeletei do recommend stocks to short. i won't short until my bank lets me use the money from my short to go long since they dont, i can make much more long than any short.
I was only joshing with you. I am long on Dominos U.K. , so i like to keep an eye on Dominos USA, as what seems to work with the American consumer also seems to work very well over here. I like the Artisan pizza product and feel it is a secret recession buster that appears to be going down well with the U.S. pizza consumer. I like Dominos u.k. as they have just taken on the German Franchise and that will double the market share that Domino U.K. have. A company that can grow in a very bad recession and still increase profits, has got to be given some credit ! Excuse the Pun . Let me guess you are living in New York and can't sleep ?
ReplyDeleteyou are correct. is dominos uk a separate company their finances look great
ReplyDeleteYes, Dominos UK/IRL are one big Dominos Franchise
ReplyDeleteand have just taken over 75% ownership of the German Franchise.