It’s been a year and a half to forget for Domino’s Pizza investors. The stock reached an all-time high of $567.57 on the last day of 2021. From then on, the bears took over and never looked back. On May 31st, 2023, DPZ dipped below $286 a share, down almost 50% from its record. Not that its fundamentals have changed that dramatically.
It’s just that at nearly $570 a share, the stock was trading at a P/E of 42. One could argue that it was actually in bubble territory. Currently at 23 times forward earnings, it is still far from a bargain, but definitely not as overvalued as it once was. Can we expect a recovery, though? Let’s ask the charts.
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The daily chart of Domino’s Pizza allows us to put the crash from $568 to $286 into Elliott Wave context. It can easily be seen as a simple A-B-C zigzag, where wave C is an ending diagonal. Once a correction is over, the preceding trend resumes. Not to mention that according to the theory, ending diagonals are usually followed by “a swift and sharp reversal.”
If this count is the correct one, a notable recovery makes sense from here. Supporting the positive outlook is a bullish divergence between wave A and all three lows within wave C. An alternative count would suggest that the drop from $568 is actually one big leading diagonal. In both cases, however, we can anticipate a rally to the resistance near $400 a share. In other words, Domino’s Pizza stock can rise by at least 30%, maybe more.
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