Sainsbury’s (LSE: SBRY) shares are back. Or, at least, they’ve had a rather good few months. This was capped off by the supermarket reporting a surprise increase in market share for the 12 weeks to 24 December 2023.
A growing slice of the pie is some feat. The rise of budget rivals like Aldi and Lidl led to many questioning the future of the UK’s second-biggest supermarket chain. So this reversal in fortunes has made the stock look enticing.
Investors seem to think so. They’ve been piling in over recent months. The shares surged 25.3% since last October although weak clothes sales did cause a 5% drop after Thursday’s trading update.
I don’t own Sainsbury’s stock, but I’m wondering whether to get in on the action here. The shop ticks many boxes for me. Retail is a highly defensive sector, which bodes well long term. Throw in a solid dividend and modest debt levels and the stock looks attractive.
However, the threat of budget competitors has stopped me picking up shares in the past. That’s why this recent news has intrigued me. If Sainsbury’s can hold its own in the ‘Aldi Lidl era’ then perhaps I need to revisit my decision.
Before I get carried away, I’ll point out that this bump in market share was only over three months. While it could be a sign of things to come, it’s a small shift over a short period.
Rivals
Equally, much of the gap seems to be due to the weakness of two of its competitors, Asda and Morrisons. Both supermarkets are highly leveraged and have struggled to invest with interest rates as high as they are.
As for the other shops, Tesco lost ground and Lidl was the biggest winner. While Aldi increased market share, it was by a smaller amount than Sainsbury’s. That’s a feather in the cap, if you ask me.
Stealing the lunch of Aldi and Tesco is some pat on the back for CEO Simon Roberts. He joined in 2020 with a clear focus on the food side of the business – a strategy that seems to be paying off.
He plans to announce an updated strategy next month, “building on all we’ve done to put food back at the heart of Sainsbury’s over the last three years.”
My move
The momentum looks strong here, but the stock is not an obvious buy. For one, share price appreciation has been thin on the ground for decades. I could have bought Sainsbury’s shares in 1991 for more than they are worth now.
In this case, perhaps I’d look at the dividend as a reason to purchase the shares. Well, a 4.57% forward yield would have looked attractive only three years ago. Now, I have to compare it to a guaranteed 5% in savings accounts.
All in all, there’s plenty to be positive about here but I’m not seeing the obvious value I’d need to open a position. The stock will remain on my watchlist for the time being.
