Domino's Pizza Stock Is Dirt Cheap, With 30% Potential Upside - What's the Best Play?

Domino's Pizza (DPZ) stock keeps falling. DPZ is at least 30% too cheap, based on its strong free cash flow (FCF) and high FCF margins. Two attractive plays are to sell short out-of-the-money (OTM) put options with near-term expiration dates, as well as buy long-dated in-the-money (ITM) calls.

DPZ dropped to $294.20 on Friday, Sept. 18, near its 6-month low price of $283.03 on June 23. This was about a month before its July 23 Q2 earnings release.

After that, DPZ floated higher. Maybe that same pattern will return, as Q3 earnings are due out on Oct. 13.

Moreover, the stock is well below both analysts' price targets. In addition, DPZ is well below historical forward price/earnings (P/E) metrics. More on that below.

However, one reason why it is weak may be that analysts have slightly lowered their revenue projections. For example, 2026 revenue forecasts are now $5.18 billion , down from $5.2 billion as reported in my July 21 Barchart article (" Domino's Pizza Delivers Strong FCF and FCF Margins - Is DPZ Stock Too Cheap? ")

In addition, analysts are forecasting $5.30 billion for 2027, down from $5.37 billion in prior average forecast surveys. Some are concerned Domino's faces weak demand, increasing competition, and is closing stores faster than expected.

Nevertheless, its FCF is still strong. Last quarter it generated a 14% FCF margin, and its trailing 12-month (TTM) margin was 13% of sales.

That implies that over the next 12 months (NTM), its average $5.24 billion in sales could generate 4681 million in FCF.

So, using a 5% FCF yield metric, its market value should be $13.6 billion ($5.24b/0.05), compared to its existing $9.733 billion market cap. That implies a price target (PT) 40% higher, or $411.88 per share.

Other analysts also see significantly higher PTs: $381.11 (Yahoo! Finance), $383.21 (Barchart), and $411.93 (AnaChart).

Moreover, a third valuation metric is its forward P/E ratio. Over the last 5 years, DPZ has had an average forward P/E of 24.46x according to Morningstar, and 26.76x (Seeking Alpha).

So, using a rough average multiple of 25x and applying analysts' 2026 EPS forecast of $19.04, DPZ's value is $476 per share. Even at a 25% discount to the average forward P/E, the PT is $357.00 , or 21% higher.