Does J Sainsbury plc Provide Exceptional Value For Money?

In this article I am looking at whether J Sainsbury (LSE: SBRY) is a canny supermarket selection.

Price to Earnings (P/E) Ratio

Sainsbury’s has taken an intelligent approach to investment in recent times to keep sales ticking higher, allowing it to avoid the Sainsbury'sworst of intensifying competition and pressure on customers’ wallets. The business has of course boosted its presence in the online and convenience sub-sectors, but its decision to plough vast sums into brand development and product quality has seen it emerge as the rising star of the mid-tier grocery space.

And Sainsbury’s was recently changing hands on P/E multiples of 11.1 and 11 for the years concluding March 2015 and 2016 respectively. These readings are just ahead of the bargain benchmark of 10 times prospective earnings.

Price to Earnings to Growth (PEG) Ratio

The supermarket’s efforts have seen revenues move reliably higher during each of the past five years. But analysts are concerned that the impact of budget retailers — and Sainsbury’s need to implement vast discounting to mitigate this risk — will shake earnings in the near term at least.

Indeed, Sainsbury’s is expected to punch a 7% earnings decline this year, and a fractional improvement is pencilled in for 2016. This year’s anticipated fall does not create a valid PEG ratio, naturally, while next year’s slight uptick creates a gargantuan readout of 43.1.

Market to Book Ratio

After total liabilities are deducted from total assets, Sainsbury’s book value is revealed at some £6bn. This figure creates a book value per share of £3.17 which, at recent share prices, produces a market to book value of 1. This is bang on the widely-regarded bargain benchmark.

Dividend Yield

Sainsbury’s has a terrific record of rolling out reliable hikes in the full-year dividend, a scenario which has kept the yield comfortably above the market average. However, the prospect of near-term pressure on the bottom line is expected to force the grocer to cut the annual payout to 16.5p per share in 2015 from 17.3 last year. A modest repair, to 16.9p, is expected in 2016.

These projections still create bumper yields, however, with readings of 4.8% and 4.9% coming up for this year and next correspondingly. These figures comfortably surpass a forward average of 3.2% for the FTSE 100.

Surging Competition Casts A Shadow

I have long been an advocate of Sainsbury’s as a sound stock choice given its ability to steal customers from middle-ground retailers including Tesco and Morrisons, boosted by its aggressive moves into internet and convenience shopping. And based on the metrics above the firm still remains a cheap pick on both a growth and income basis.

But with the likes of bargain outlets such as Lidl and Aldi now starting to eat into Sainsbury’s market share as well — latest Kantar Worldpanel stats showed this fall to 16.5% from 16.7% at the same point last year — investors should be aware that the business could be subject to severe analyst downgrades.

This Bull Market Has Become A Rodeo Ride

But regardless of whether you fancy sticking Sainsbury's in your stock basket, and are looking to maximise your chances of making a mint from your shares portfolio, I would urge you to check out this EXCLUSIVE Fool report which highlights many of the pitfalls that can seriously whack your investment returns.

Our "3 Companies To Profit From The Economic Recovery" publication picks out a handful of stock market stars poised to make stunning gains over the next 12 months, and tells you how to avoid those most likely to tank. Click here to enjoy this BRAND NEW report -- it's totally free and comes with no further obligation.

> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.