2 Numbers That Could Make J Sainsbury plc A Terrific Turnaround Buy

Royston Wild explains why J Sainsbury plc (LON: SBRY) could prove to be a high-risk, high-reward stock star.

| 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.

Today I am looking at why Sainsbury’s (LSE: SBRY) could be a classic contrarian pick.Sainsbury's

Here are two numbers that I think help make the case.

17

To say that Sainsbury’s and the rest of Britain’s mid-tier grocers have their backs to the wall at present would be a huge understatement. Whacked by the march of the budget chains like Aldi and Lidl, as well as success of Marks & Spencer and Waitrose in attracting affluent customers, the fortunes of the established chains have been shaken up like never before.

At first Sainsbury’s managed to hurdle the worst of these troubles through a combination of shrewd brand and product development, such as its Taste The Difference range, as well as terrific marketing campaigns. It also managed to cannibalise the middle ground populated by the likes of Tesco, helped by the disastrous horsemeat scandal which drove shoppers screaming from the doors of its rival.

But Sainsbury’s is finally getting its comeuppance as the middle tier becomes an ever-smaller hunting ground, and the discounters improve their own product offerings and expand aggressively. Indeed, latest Kantar Worldpanel statistics showed the company’s market share slide 60 basis points in the 12 weeks to October 12, to 16.1%.

Still, a rare ray of sunshine comes in the form of surging business at its ‘Sainsbury’s Local‘ convenience stores. Revenues here are stomping higher at a rate of around 17%, and annualised sales now stand at more than £2bn.

This is viewed as a lucrative growth sector on the back of changing consumer trends, with shoppers now making more frequent trips but filling their baskets with less. This has not been lost on Sainsbury’s, which plans to open two new convenience outlets each and every week and opened 23 new outlets in the past quarter.

With Sainsbury’s nursing an increasingly-unpopular suite of out-of-town megastores, it will of course take time for success here — as well as through its online channel, where sales rose 7% during the last quarter — to compensate for dragging activity at its traditional stores. So investors will need to be patient before any turnaround can be expected.

15

Equally promising is the company’s plans to muscle into the discount space itself, with Sainsbury’s having inked a deal with Danish chain Netto back in July to open 15 stores in Britain by the end of the year.

The outlets will be concentrated in the North of England, with the first outlet opening its doors in Leeds early next month and a second to be incorporated into an existing Sainsbury’s megastore in Manchester. The likes of Aldi and Lidl will of course try to nip the venture in the bud, but Sainsbury’s decision could prove a smart and fruitful counter-punch in the supermarket wars.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares in 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

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 »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »