Can J Sainsbury plc’s Share Price Return To 590p?

Will J Sainsbury plc (LON: SBRY) be able to return to its previous highs?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.

Today I’m looking at J Sainsbury (LSE: SBRY) (NYSE: JSAIY.US) to ascertain if its share price can return to 590p.

Initial catalyst

However, first we need to establish what caused Sainsbury’s to hit its high of 590p per share in the first place. It would appear, that like many of the companies peers, Sainsbury’s reached its high back in the pre-crisis market euphoria of 2007. 

That said, Sainsbury’s share price was also buoyed by the company’s impressive earnings growth. Indeed, during 2007, the company drove year-on-year pre-tax profit higher by a staggering 359%. In addition, for the same 2006 to 2007 period, basic earnings per share increased by 405% — extremely impressive.

Still, despite this growth Sainsbury’s 2007 EPS stood at only 19.2p, which placed the company on a P/E of 31 at a share price of 590p. Nonetheless, with EPS growing at 400% during the previous year, investors were right to place a growth premium on the company. 

But can Sainsbury’s return to its former glory?

Six years on and it would appear that Sainsbury’s growth has slowed. However, investors are still placing a growth premium on the company, as Sainsbury’s steals sales and market share from its peers, Tesco and Morrisons. In particular, Sainsbury’s trades at a historic P/E of 12.9, while its peers in the wider food & drug retailers sector trade at an average historic P/E of 12.7.

However, a move back to 590p would mean that Sainsbury’s would be trading at a historic P/E ratio of 19.2, not too taxing, although this would mean that Sainsbury’s would look expensive in comparison to its peers.

Nonetheless, with City analysts predicting EPS growth of nearly 10% for the next two years, Sainsbury’s does deserve a small growth premium over its peers. 

Having said all of that, it would appear that investors are still hesitant to pay too much of a premium for retailers such as Sainsbury’s while economic headwinds persist. What’s more, the food and drug retailers sector remains highly competitive and growth for the major retailers is becoming harder to achieve.  I feel that these two important factors will hold Sainsbury’s back.

Foolish summary

All in all, I would not rule out Sainsbury’s share price returning to 590p in the long-term as the company continues to grow faster than its peers. However, I feel that during the next year or so, Sainsbury’s is going to struggle against the current economic backdrop.

So overall, I believe that Sainsbury’s cannot return to 590p in the short-term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert owns shares in Tesco. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »