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100 Reasons Why J Sainsbury plc Could Be Considered A Buy

As the electric surge of the discounters smashes footfall at the UK’s grocery superstores, the likes of Sainsbury’s (LSE: SBRY) and its peers are becoming increasingly reliant upon the growth sectors of convenience and online to rescue their earnings prospects.

To this end Sainsbury’s made a huge step this week by announcing plans to roll out ‘click and collect’ services to 100 of its stores by the end of 2015. The free collection scheme will run up and down the country, and the grocer plans to have 20 of these locations up and running by the close of the month, starting with Farnham in Surrey which started doling out bread and washing powder yesterday.

Scheme bolsters grocer’s online push

‘Click and collect’ is becoming an increasingly-popular initiative with companies across Britain, from clothing retailer NEXT through to household goods giant Argos and book emporium Waterstones. In the supermarket space Tesco, Ocado and Asda are already witnessing strong demand for their own shopping collection schemes.

While it is true that e-commerce offers terrific revenues opportunities, Sainsbury’s has seen internet sales come under pressure more recently as all of its main rivals bar the budget chains have piled into the sector.

Sainsbury’s has been delivering to the door for the best part of two decades now, but it having to chuck increasingly-vast sums into its internet operations to fend off the competition. As well as planning to open its first ‘dark store’ in Bromley-by-Bow in 2016, the business is also investing a huge amount of cash at its online platform to improve the customer experience as well as to increase its range — just last month Sainsbury’s expanded its online clothing trial from the Midlands to London and the South-east.

The competition remains fierce

But whether or not these measures will give Sainsbury’s the edge against its competitors remains to be seen, particularly as Tesco et al are bulking up their own online services. And while cash-strapped customers continue to flock to Aldi and Lidl, and more affluent customers take their custom to the likes of Waitrose, Sainsbury’s will need to keep innovating just to stay afloat.

Indeed, City analysts expect the business to record a 22% earnings decline in the year concluding March 2015, which if realised would represent the first annual dip for many moons. And an extra 13% dip is anticipated for the following 12-month period.

Although these projections create cheap P/E multiples of 10.8 times and 12.4 times prospective earnings for these years — any reading below 15 times is widely considered attractive value — the number of challenges Sainsbury’s faces to return to earnings growth could still deter many from taking the plunge with the beleaguered grocery giant.

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