J Sainsbury’s (LSE: SBRY) share price is trading around a level last seen in August 2021. This follows a 54% jump from the supermarket giant’s 10 April one-year traded low of £2.23.
Such a rise, though, does not necessarily mean that there is no value left in the stock. This is because price and value are not the same thing.
The former is simply a function of whatever the market is willing to pay at any given time. But the latter reflects the true worth of the underlying business’s fundamentals.
So, regardless of the share price move, the stock could be undervalued, fairly valued, or overvalued right now.
To find out which it is, I re-examined the core business and ran the key numbers.
The fundamentals
The key driver for the price rise has been a series of strong results, in my view. This began with 17 April’s release of its full fiscal year 2024/25 numbers and shareholder reward announcements.
Revenue rose 1.8% year on year to £32.8bn, while profit after tax soared 76.6% to £242m. Basic earnings per share jumped by roughly the same amount (76.3%) to 10.4p.
At the same time, the firm announced a £200m share buyback programme. These tend to support share price gains.
It also increased the dividend by 4% to 13.6p and said it expected to pay a special dividend in H2. This would involve some of the proceeds from the disposal of Sainsbury’s Bank to NatWest.
The Q1 results of the new 2025/26 fiscal year were also very solid. These saw a 4.7% year-on-year rise in like-for-like sales, excluding fuel. These are sales coming from its existing stores, excluding the impact of new or closed locations.
The period marked the 30th consecutive quarter of growth in customer numbers. And it is the third consecutive year in which Sainsbury’s has gained overall market share.
In the results document, the firm reiterated its full-year 2026 forecast for retail underlying profit of around £1bn. It was £701m in its full fiscal year 2025.
What’s the outlook?
It is earnings growth that ultimately powers gains in any firm’s share price (and dividends) over time.
A risk for Sainsbury’s is the cut-throat competition in the sector from historical rivals and newer budget operations.
However, the consensus of analysts’ forecasts is that its earnings will increase by 7.2% a year to the end of fiscal year 2027/28.
So how does the value proposition look?
The discounted cash flow (DCF) method is the best way to establish the fair value of stocks, in my experience. It pinpoints the price at which any share should trade, based on cash flow forecasts for the underlying business.
The DCF for Sainsbury’s shows its shares are almost exactly at fair value now.
In terms of price, then, there is no reason for me to buy them.
Given their current dividend yield of 4%, there is no reason for me to buy them for that, either.
I already hold several growth stocks that offer higher share price rise potential and many dividend stocks that pay over 7%.
And I think several stocks offer better opportunities in both departments than Sainsbury’s at the moment.
