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