Over time, a company’s earnings will drive its share price higher. In the short-run, headwinds like uncertainty over consumer spending could lead to some buying opportunities as share prices get unfairly knocked down.
That’s because markets tend to move on short-term news, creating dips on the path to long-term growth. These buying opportunities occur often during earnings season, when solid earnings numbers get overshadowed by short-term or one-time fears.
That looks like the case with Domino’s Pizza (DPZ). The pizza chain posted mixed results, with strong earnings. But they company cut guidance following weak consumer spending. That’s part of the wider trend of consumers cutting back on spending after years of above-average inflation.
Domino’s is up just 18% over the past year, far lagging the S&P 500. But with earnings growth of 22%, shares are looking undervalued. And pizza chains may continue to hold strong compared to the rest of the industry given its relatively low costs, plenty of deals, and delivery options.
Action to take: Long-term investors may like shares here. The stock is now down about 25% off its 52-week highs, and continued earnings growth should reward shareholders over the long haul.
At current prices, Domino’s also pays a 1.5% dividend.
For traders, the January $450 calls, last trading for about $8.75, could see mid-double-digit returns on a year-end rally for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.