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Domino's Pizza (DPZ) is not exactly rolling in the dough today. Despite reporting a large EPS beat for Q3, the stock opened lower but has moved off its lows. Sales were a bit light and US comps declined.

• In terms of the headline numbers, DPZ reported a huge $0.14 EPS beat, which was not quite as large as last quarter's $0.24 upside, though it was still robust relative to other recent quarters. This is impressive considering the labor shortages that its industry is facing right now, not just at stores but also at supply chain centers. The main problem was the top line. Revenue grew 3.1% yr/yr, but at $998 mln, it was shy of the $1.03 bln consensus.
• The main concern was US same store sales, which fell -1.9%. In fairness to DPZ, it was lapping monster +17.5% comps from the year-ago period, a time before the approval of a vaccine when people were staying home and buying pizza like crazy.
• International comps were better at +8.8%, but those sales were lapping a much easier +6.2% comp. International comps matter, but US comps are the more important metric.

Our take on the comps is that we think investors need some context. Not only was DPZ lapping a huge comp from last year, but the company also did not have the benefit of federal stimulus and tax refunds this year. Yes, DPZ also lapped a big comp in Q2 and was able to eke out a +3.5% comp, but Q2 benefited from stimulus, and the two-year stacks for both quarters are in the same general ballpark (+19.6% in Q2 vs +15.6% in Q3).

Looking ahead, it's unfortunate that DPZ does not provide guidance. However, the good news is that the US comp hurdle in Q4 eases a bit. At +11.2% in the prior-year period, it's still high, but it is not nearly as high as those of Q2 and Q3, both in the high teens.

Bottom line, we think investors are overreacting to the negative US comp number. Lapping a huge comp and a lack of federal stimulus dollars hurt results. Also, with the vaccine now widely available, people went out to eat a lot more this summer after being cooped up during the pandemic. Basically, there were a lot of headwinds for US comps in Q3, and we think DPZ did well under the circumstances. But that's what happens to a stock with a lofty valuation. DPZ is trading at a current P/E of 35x, which is high for a restaurant stock. As such, on any sign of less than stellar news, the stock can get sold.