J Sainsbury plc Finally Reaches Its Sell-By Date

If J Sainsbury plc (LON: SBRY) could make money for investors when it was growing, what happens when it shrinks? asks Harvey Jones

| 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.

Sainsbury's

Although I lost faith in the supermarket sector some time ago, I retained sneaking admiration for Sainsbury’s (LSE: SBRY), which had appeared to have pulled off a tricky balancing act.

First, it had clung onto its market share tenaciously, far better than struggling rivals Tesco (LSE: TSCO) and Morrisons (LSE: MRW). I was also impressed by how it managed to retain its broadly upmarket status.

In any other industry, a company that had delivered 36 consecutive quarters of growth, as Sainsbury’s did under former chief executive Justin King, would have seen its share price spiral. That didn’t happen at Sainsbury’s. Instead, its share price was down over five years.

If the shares slumped while Sainsbury’s was growing, what will happen now that it’s shrinking?

Bad Bet

Sainsbury’s has been the worst performing supermarket in the past four weeks, during which time its sales fell by 2.2%, according to latest figures from Kantar WorldPanel.

This is the first time in more than two years that Sainsbury’s has performed worse than its big four rivals Tesco, Morrisons and Asda.

Sainsbury’s also suffered a slight fall in its market share, from 16.5% to 16.4%, year-on-year.

I’m worried there is worse to come, and I’m not alone, with the share price falling faster than any other stock on the FTSE 100 when the news broke.

Sainsbury’s was already the second most shorted stock on the FTSE 100, as hedge fund managers bet on bad news.

Shopping For Shares

Bad news for Sainsbury’s doesn’t necessarily mean good news for rival Tesco, however. Its market share has fallen a mighty 4% in the last 12 months, from 30.2% to 28.8%.

The grocery sector as a whole is battling against a deadly combination of falling prices and falling food sales, as cash-strapped shoppers show little gratitude for recent price cuts, claiming the supermarkets must have been overcharging before.

There was good news for Morrisons, as its price-cutting campaign delivered a 2.4% rise in sales over the last month. Brave contrarians may see this as a buying opportunity. I’m not that brave.

For Richer And Poorer

The growth trajectory at Sainsbury’s has been flattening for some time, and this week’s slippage suggests there could be more trouble in store.

Aldi and Lidl are rampant. Their sales are up 29.5% and 18.3% respectively over the past 12 months. Shoppers originally went there for low prices, now they are returning to admire the quality.

Despite its attempts to stay aloof, Sainsbury’s lacks the aspirational status of Waitrose, which could ultimately force it to join in the price-slashing melee.

It has also at the mercy of wider changes in shopping trends, as people pick up bits and pieces when they need them, rather than doing a big weekly shop, and battle to cut down on food waste.

Those who do have money to spare are using more of it eating out in cafes and restaurants, leaving supermarkets squeezed between the worried and the wealthy.

Best Before?

The Sainsbury’s share price is down 21% over the past 12 months. This has knocked its valuation to just 9.3 times earnings, so it’s a bargain by some metrics. Its 5.7% yield is undoubtedly juicy, but likely to dry up some time soon.

Tesco is cheaper at 7.8 times earnings, and maybe its run of bad luck is due to turn, just as good luck runs out on Sainsbury’s. But  its 5.92% yield also lacks sustainability.

Some investors specialise in riffling through the bargain bins, looking for stocks that have passed their sell-by date. But you would need a strong stomach to buy Sainsbury’s today.

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.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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 »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »