Fast food giant Domino's Pizza's shares have slumped to an almost four-year low over fears that slowing growth in sales and store rollouts will see it deliver lower than expected profits over the next two years.
Morgan Stanley analyst Thomas Kierath on Tuesday cut his price target for the ASX-listed company's shares from $50 to $41 on Tuesday, and sliced his recommendation to investors from over-weight to equal weight.
Domino's shares had fallen 6 per cent to $38.26 by 11.30am, which is the lowest they have traded since September 2015. The shares were trading as high as $80 in 2016.
Mr Keirath said that after 10 years of strong double digit growth, Domino's Australian and New Zealand business was slowing.
He said that was "driven by the law of large numbers (finally), competitors catching up with online capabilities, moderating same store sales growth and new product innovation that lacks the punch of that in prior periods".
"Same store sales growth has slowed significantly in recent periods, reflecting very strong growth in prior periods and it reaching its potential market share in Australia and New Zealand," Mr Keirath said in a note to clients.
Morgan Stanley found that Domino's had added few stores to its network in the past five months, while data showed an 11 per cent fall in Google impressions, which suggested sales were slowing.
Domino's said in February it was heading towards the lower end of its guidance for earnings and sales growth.
But Mr Keirath said that Domino's was like to miss its guidance for earnings to grow between 10 and 20 per cent this year entirely. He cut his earnings per share forecast for 2019 to 2021 by between 4 and 9 per cent.
The slowing in sales and store growth in Australia, New Zealand and Europe would be partially offset by higher earnings in Japan, helped by the weakened Australian dollar.
Domino's is the 25th most shorted stock on the ASX, with 8.7 per cent of its shares held in short positions, according to shortman.com.
The company said it did not comment on day-today share price movements and would provide a trading update on the day of its full-year result, on August 21.
More to come