Uber eats into Domino’s Pizza

In the age of Uber Eats, it appears the one-time Brisbane start-up may have stretched its formula as far as it can go.

A Domino's pizza. (AAP Image/Paul Miller)

Domino’s, the remarkably successful global pizza company — and one of the best stocks on the ASX in recent years — failed to match its own forecasts with its full-year results today and bargain hunters were nowhere to be seen.

With many hedge funds betting the stock was heading for a fall, only the bravest investors will now be buying the stock which faces a string of hurdles — the latest being that superstar chief executive Don Meij can get forecasts for his own company very wrong.

Though the pizza maker — which has been in trouble for underpaying staff — is still rated a “buy” at leading brokers such as UBS, Morgan Stanley and Macquarie, it is expected that analysts will be returning to their models and reviewing calls on Dominos in the coming days.

Worse than “missing guidance” the operational performance of the group showed a real slowdown in overseas earnings growth with particular problems in continental Europe that CEO Meij says are now “fixed”.

But in the age of powerful app-based food delivery services such as Uber Eats and Deliveroo it looks like the best days may now be behind the one-time Brisbane start up which has stretched its formula for fast delivery of pizza all over the UK, France, Germany and Japan.

Hedge funds specialising in shorting, which control more than 10 per cent of the stock at present — were proved to be right on target when the disappointing numbers prompted a sharp slump in the stock price (DMP) which at one stage sunk 20 per cent to as low as $40.00 a share — less than half the so-called price target set by some of the biggest brokers in the local market.

However, one broker- Citi — will be chuffed it made a major call to slap a “sell” note on Domino’s only three months ago when the broker argued — even before the latest interim figures were released — that the stock was worth at most $45.50. Citi also noted today a recent announcement by CEO Meij that he will be selling some of his own shares in the near future will be another negative in the months to come.

More commonly, brokers will have to reassess the stock in the light of the company’s own ‘softer’ forecasts which imply the consensus broker forecasts are about 12 per cent too high.