As a veteran value investor, I’m always running stock screens to find cheap shares. Usually, I restrict these searches to the UK’s blue-chip FTSE 100 index. Even so, I occasionally fail to spot the odd cheap share during my bargain-hunting exercises. For example, J Sainsbury (LSE: SBRY) shares have plunged by almost two-fifths from their 52-week high in August 2021. I don’t own this stock, but I’m interested to find out whether the Sainsbury’s share price is too low today to see whether I should soon become a shareholder!
Share price slump
At its 2021-22 high on 24 August 2021, the supermarket’s share price hit an intra-day peak of 342p. As I write on Friday lunchtime, it stands at 212.1p. This leaves the shares 38% below their 2021 high. What’s more, this FTSE 100 share is just 2.2% above yesterday’s 52-week low of 207.56p.
Here’s how Sainsbury’s shares have performed over seven different timescales:
| One day | 1.2% |
| Five days | -8.6% |
| One month | -9.1% |
| Year to date | -23.2% |
| Six months | -23.0% |
| One year | -16.7% |
| Five years | -16.0% |
As you can see, the Sainsbury’s share price has lost value over all periods ranging from five days to five years. In other words, this stock has been something of a dog for half a decade. But I love dogs, both in terms of canines and ‘fallen angel’ companies. After all, I buy shares to profit from a company’s future, not its past.
I think this FTSE 100 share is too cheap today
In the 12 weeks ending 15 May 2022, Sainsbury’s had a 14.8% share of the British grocery market. This makes it the UK’s second-biggest supermarket chain after Tesco, with a 27.4% share. (Personal anecdote: I live about three minutes away from a large Sainsbury’s superstore. It is always busy, even at off-peak times. And the staff are professional and friendly, which helps.)
But when I look at the Sainsbury’s share price today, I see lowly ratings that don’t reflect the strengths of the underlying business. Here are the group’s trailing fundamentals:
| Market value | Price-to-earnings ratio | Earnings yield | Dividend yield | Dividend cover |
| £5bn | 7.4 | 13.6% | 6.2% | 2.2 |
At the current Sainsbury’s share price of 212.1p, the business is valued at £5bn, making it a large-cap player on the London Stock Exchange. Yet its shares offer a trailing earnings yield of 13.6%, which is roughly double the FTSE 100’s earnings yield. That seems rather attractive to me.
Also, Sainsbury’s shares offer a dividend yield of 6.2% a year. That’s close to 1.6 times the cash yield of the wider FTSE 100. What’s more, this dividend is covered 2.2 times by earnings, giving plenty of scope to maintain and lift cash pay-outs.
Of course, there’s lots to worry about nowadays, including soaring consumer prices, rising interest rates, war in Ukraine, and slowing global economic growth. But I view most of these problems as already baked into the Sainsbury’s share price. As I said, I don’t own this stock currently, but would happily buy these cheap shares today for their market-beating income and potential capital gains!
