What’s happening with Domino’s is incredible

Dominos - if you own this you need to know what has been going on – it’s quite incredible. Dominos stock went  ex-div on Tuesday 21st Feb and  ended up closing up +36c or +0.65%, and at its high it was up  +1.05 or +1.9%.  That is normally a  very good sign of underlying strength – but this time I’m just not so convinced. Well what is truly amazing (to me anyway) is that the shorts have really taken to this stock. Over the years as I was positive on Dominos (from $14), I found many instos were too scared to buy them for fear that the stock was on 50x to 60x, expensive, and going to come crashing back. My rational was it was  growing at such an exponential rate - it would hold its gains and continue higher. But as mentioned 3 months ago, having been a big supporter, & cannot go near them anymore, despite their great profit and growth numbers, that may be slowing from that exponential speed we saw for so long. Too many things are turning against them right now (PE still the biggest issue). Well those who were not buyers at $11 are more than likely never going to be buyers until its PE comes right back.

 

But the stock has another - more serious issue to deal with. Dominos now has its highest short position ever the shorts can see blood in the high PE stocks and this one - had ;- initially withstood the storm & better & than other & high PE stocks. But it has been savaged hard in the last few months.

 

Problem is that there are & very few instos who dare pay these multiples  (especially after the recent general PE contraction) and so the  buyer pool is very limited.  BUT now with the shorts  taking a shine to it, they have extra pressure on them

 

All they need (or don't need) is a small trip  and the  stock could get hammered even more (although it's more 'likely' that this stock just moves sideways for a long time).

 

Also the other problem with  DMP  is - having traded it for clients over the years - it’s a  real  tough stock to  buy  or  sell  as liquidity is  so thin. So if the  buyers are  drying  up  and the  shorts  increasing,  I can't see Dominos rallying back to $80 in 2017. I may be wrong, but I'd  prefer just play a wide berth on DMP  while  PE de-rating is going  on.

 

Look at what the shorts are doing

 

  • On the 9th Jan 2017 they were at 4.73%, then a few shorts went on just before the result, taking them  up to 5.35% just before they reported.
  • On the  day they reported (having already fallen heavily into the result) the stock dropped another -14%on the day from $62.54 to $53.56. 
  • Since then the  stock price has recovered +4% back to $55.81.
  • But the shorts continued over this time to  increase to now a  record of 8.29% of the company. 
  • So in the last 6 weeks the shorts have increased from4.73% to 8.29% or up 3.56% or as a % 75% - amazing .. 
  • Also when you consider that 5 shareholders own 57% & most I'm guessing don't want to sell - it means that the  shorts  own around (an extraordinary) 18.8% of Dominos free float.... 
  • That is real conviction that you rarely see the shorts get wrong (they sometimes do in long term - but rarely in the short term) .. 
  • So the Shorts have declared their hand and this is going to be one very bloody battle.
  • So instos may see that if the shorts are "peaked out" then maybe they can squeeze them ... could be an interesting register to watch from both insto moves & short selling moves.. 

 

Here are 3 charts 

 

(1) This Shows Domino's short interest going up recently - extraordinary !!

 

(2) This shows over the last 3 years how shorts would not dare take on Domino's - but look now:

 

 the spike is unbelievable - as though they have finally discovered their weakness & are all piling in. 

which begs the question many will ask - who is lending the shorts all this stock - answer - you may not want to know the answer as it may shock you  - they ahve to "borrow" it from somewhere !!!  

 

 

 

(3) This is again one that may make the instos feel a bit better that then can soon take on the shorts..

 

It shows how much of the daily trading volumes in Dominos have been "short sales". Now what we can see is that before the shorts were running at 35% to 43% of daily turnover, but since their result on the 15th Feb (look from 17th Feb as short data is delayed by a few days) - we can see that on the 17th Feb (which corresponds with the day DMP reported -2 days) saw  shorts account for 78% of the trade - which also explains why stock was down -14%,.

 

In the 17 days BEFORE DMP reported the shorts were around 50% of daily volume (as they were selling due to high PE stock de rating)

 

BUT in the 7 trading days (not forgetting short trade data is delayed) - the shorts have been roughly 67% of daily volume  since then.

So with  shorts at 8.29% of coy (or 18.8% of free float - assuming all instos are LT holders) then they must be close to being "maxed out" - which is when the instos may try & squeeze them?

 

This is one gladiatorial battle worth watching closely...

Extract from The Coppo Report. More detail about the report is available here:    (VIEW LINK)

 

 


1 stock mentioned

Richard Coppleson
Director of Institutional Sales and Trading
Bell Potter

Richard authors “The Coppo Report”, a highly regarded market newsletter. He has over 30 years’ experience in financial markets, beginning his career at Ord Minnett where he worked for 15 years, before moving to Goldman Sachs.

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