It used to be one of the hottest growth shares on the S&P/ ASX200 (ASX: XJO) but the Domino's Pizza Enterprises Ltd (ASX: DMP) is down 5.3% to $38.52 today and is now not far off a 52-week low and below levels the stock traded at in August 2015.
The reason for the downgrade is that one of the pizza business's strongest sell-side cheerleaders in Morgan Stanley has reportedly downgraded its valuation on the stock by around 18% from $50 to $41 in a surprise move hurding Domino's bulls to the exits.
Domino's shares topped out over FY 2017 at prices between $52 and $77 when I repeatedly suggested the company's best days may be behind it and that consequently the stock was overvalued.
It turns out those assumptions were on the money with the business struggling to produce same-store sales growth in Japan and going on an increasingly risky acquisition strategy in Europe, while its core Australian market grows more saturated.
There were a number of other warning signs on the business including CEO selling, and reports around the state of the fast-food franchising industry in Australia as a whole.
As such I'm not surprised to see the stock near a 52-week low today as it seemed expectations of flawless global execution and indefinite strong growth were way too optimistic.
That's not to say this is a bad business, it's just one that is being re-rated by investors on the back of a more realistic growth outlook. I'd rate the stock a hold for now.
