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When to Buy the Dip in Domino's After Earnings Miss

Domino's is under pressure after missing on earnings, but beating on revenue and same-store sales. Let's look at where support may come into play.

The overall market was up nicely Thursday, but Domino’s Pizza  (DPZ) - Get Domino's Pizza, Inc. Report investors can only wish for the stock to turn green at this point.

Shares were down about 7% - and were down almost 8.5% at one point - after the company reported its third-quarter results.

Earnings of $2.49 a share missed analysts’ expectations by 24 cents, while revenue of $967.7 million grew 17.9% year over year and beat estimates by almost $13 million.

Even better, domestic same-store sales growth of 17.9% easily beat expectations of 13.9%, while international same-store sales growth of 6.2% breezed by consensus estimates of 1.9%.

This looks like a pretty solid quarter. But the earnings miss coupled with some cautious commentary regarding the company's international sales has the stock under pressure.

It’s also down on a day when its peers like Papa John’s  (PZZA) - Get Papa John's International, Inc. Report and McDonald’s  (MCD) - Get McDonald's Corporation (MCD) Report are down, even though the latter just boosted its dividend and gave investors a business update. Let's look at the chart. 

Trading Domino’s Stock

Daily chart of Domino's stock.

Daily chart of Domino's stock.

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Look at the action in Domino’s stock from February. Shares rocketed higher on better-than-expected earnings results and struggled with the $375 to $380 area, before ultimately falling in the coronavirus selloff.

But in my mind, this was one of the healthier stocks amid the decline. At least in the sense of the chart pattern. Although shares fell over 27% from peak to trough, it was barely more than a post-earnings gap fill.

It doesn’t matter now. Shares are pulling back on this quarterly result, pinning right near the 50-day moving average. So far on Thursday, the 100-day moving average has been support, while the 20-day moving average was resistance.

This gives us an excellent roadmap. Consider the 50-day moving average to be the “tug of war zone.” Above it and the bulls are gaining ground. Below it and the bears are gaining momentum.

Bulls need to see Domino’s stock reclaim the 20-day moving average to really gain some steam. Above that mark and Thursday’s high puts a gap-fill in play up toward $430.

A break of the 100-day moving average and Thursday’s low puts channel support and the prior February highs in play near $380. That also comes into play near the September lows and seems like a reasonable buy-the-dip spot, provided buyers show up.

A close below $375 ruins that thesis though and could put the 200-day moving average on deck, which is currently near $360.