Domino’s Pizza (NYSE:DPZ) stock is constrained by macroeconomic and consumer behavior factors hanging over the stock, according to Wells Fargo analyst Zachary Fadem.

Fadem acknowledged that pricing, staffing gains, and lowered wage and freight costs into 2023 should serve as tailwinds. However, he argued that “structural headwinds” cap upside and keep him and his team on the sidelines.

“Consumer behavior is changing, putting DPZ’s historical reputation for consistent comp/unit growth, strong/stable margins, and impressive FCF in question,” he explained. “The Delivery category is now 2x pre-pandemic levels, consumer options are endless, and drivers now prefer flexibility vs. a full-time gig. We believe the best bear cases are long in duration and difficult to prove, and DPZ needs to show recent investments are resonating for this narrative to break.”

Fadem added that the company’s premium valuation is also deserving of scrutiny should growth metrics continue to lag peers.

“Comps/margins are lagging, category competition ramping, and a structural delivery narrative remains an overhang,” he concluded. “And considering Street estimates already assume FY23 improvement, we believe a [near-term] valuation re-rating likely proves difficult.”

Fadem initiated coverage of the stock at a Neutral rating, assigning it a $360 price target. Domino’s Pizza shares dipped 2.12% during Tuesday’s trading.

Read more on why Yum! Brands is a top pick for Fadem.