RELATIVE VALUATION OF DOMINO’S PIZZA, INC.

Abstract

This thematic paper evaluates the valuation of Domino’s Pizza (DPZ) by relative approach. The domestic peer consists of PZZA, YUM, QSR, WEN, CMG while the international peer contains DOM, DMP, and PZA. All companies are franchise limited-service restaurants and the most comparable to DPZ. In December 2021 and December 2022, the target prices are USD 390.73 and USD 427.90 respectively. Whereas the current market price is at USD 474.55 (8 July 2021), it is overvalued relatively to its peer. However, none of the companies have an identical business structure. DPZ has always been outgrown the industry owing to its outstanding performance. This indicates an insufficiency in relative valuation to support the investment conclusion. DCF valuation prices the stock from its fundamental which is more reliable. Lien (2021) has evaluated DPZ by this approach, target prices are USD 538.43 for December 2021 and USD 526.33 for December 2022. The investment risk level of DPZ is moderate. The probable risks arise from competitive risk and economic risk at tolerance level. The only intolerance risk is the cyber risk which leads to operation disruption and sensitive data exposure nevertheless the risk is improbable. The recommendation of DPZ is HOLD.