When to Buy Domino's Pizza on Post-Earnings Plunge

Domino's Pizza stock is plunging Tuesday, despite beating on earnings estimates. Here's where key support comes into play for DPZ stock.
By Bret Kenwell ,

Shares of Domino's Pizza (DPZ) - Get Report  did not trade well on Tuesday, falling 8.75% and closing near the lows after the company reported disappointing quarterly results. 

Second-quarter earnings of $2.19 per share easily topped analysts' estimates of $2.02 per share, as net income rose 19% year over year. However, revenue of $811.6 million grew just 4.2% from the same period a year ago and missed analysts' expectations of $811.6 million.

Investors were not happy with the results, with the stock plunging through the 200-day moving average and probing its lowest levels since April.

The profit beat was attractive, but it's not enough to offset the miss in revenue. Worse, U.S. company-owned same-store sales growth of 2.1% missed estimates of 3.4%. U.S. franchise same-store sales growth of 3.1% was better, but also missed estimates of 4.7%. International same-store sales came up short, too.

It's left investors wondering if the decline is enough of a catalyst to get long. After all, profits were up nicely, while both gross and operating margins climbed. On the charts, a better opportunity looks as though it could be along shortly.

Let's take a look at where support is.

Trading Domino's Stock

The decline in Domino's stock is weighing on peers, such as Papa John's Pizza (PZZA) - Get Report and Yum! Brands (YUM) - Get Report , which are each down on the day.

While these names are down just slightly, Domino's stock is under plenty of pressure. On Monday, Domino's also suffered a large decline, as shared ripped right through the 20-day and 50-day moving averages.

With Tuesday's decline, the two-day losses stack up to more than 12%, with key moving averages, a key level at $270 and the 61.8% retracement for the one-year range all failing to buoy the name.

Despite this, DPZ stock isn't in no man's land -- at least, not yet.

When Domino's stock gapped north of $240 in May 2018, the stock went on to find this level as support over the next 14 months. While it has cracked a few times -- falling to $230 in December and putting in a double bottom at $238 twice in March -- it has largely held firm.

Should DPZ stock decline down toward this level, it will give buyers a potential spot to dip their toes. If it holds as support, an eventual rebound up toward the 61.8% retracement near $259 and the 200-day moving average near $265 is possible.

$240 support is about 4% below current levels and at the very least, dip-buyers will know their risk at this level, as a close below $238 could signal even more downside ahead. $240 would also be a reasonable level for shorts to cover their position.

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.

Loading ...