The Sainsbury‘s (LSE: SBRY) share price has outperformed the market over the past 12 months. During this period, shares in the retailer have increased by 18%.
Following this performance, some investors might be interested in the company. Considering its defensive nature and position in the UK grocery market, the Sainsbury’s share price might be able to help you get rich and retire early.
Time to buy the Sainsbury’s share price?
Over the past five years, Sainsbury’s has faced a challenging operating environment. The company has struggled to compete with discount retailers such as Lidl and Aldi. It also lacks the footprint of its larger peer Tesco.
Sainsbury’s one advantage is its ownership of Argos, which has helped the business stand out in recent years. Unfortunately, Argos alone has not been able to offset the decline in sales from customers leaving to find bargains elsewhere.
Still, despite these headwinds, the company’s profits and revenues have held up relatively well over the past six years. Sales have grown at a compound annual rate of 4% since 2015.
And this year the company is set to report a net profit of £445m according to the City. That’s only slightly below 2016’s figure of £471m. These numbers suggest that the stock is trading at a forward price-to-earnings (P/E) multiple of around 11. The sector average is 14, implying that the Sainsbury’s share price offers a margin of safety at current levels.
The company’s profitability has enabled it to maintain its dividend to investors. The Sainsbury’s share price currently supports a dividend yield of 5.6%, compared to the FTSE 100 average of 4.3%.
These figures show Sainsbury’s has coped well in the harsh retail environment of the past five years. That being said, the group’s numbers are relatively disappointing compared to its faster-growing peers.
For example, Tesco’s operating profit has more than doubled over the past four years. From £1bn in 2016, it hit £2.5bn in 2020. The group has been able to achieve better dividend growth as a result. Tesco’s payout to investors is up 200% in the past three years. Similarly, Morrison‘s has seen its net income rise around 50% since 2016.
The bottom line
Despite the strengths of the underlying business, the Sainsbury’s share price may not be the best bet in the UK supermarket sector. The company has struggled to grow over the past five years, and this shows in the firm’s bottom line and dividend growth. Its peers have achieved a much better growth rate during this time.
However, from an income perspective, the stock does offer one of the best dividend yields in the sector. It is also the cheapest in the sector. This may mean that if the group can return to growth, an improvement in investor sentiment may lead to a higher share price. Investors would be paid to wait for the recovery to take shape.
So, as part of a diversified portfolio, the Sainsbury’s share price may offer the potential for high total returns. As a standalone investment, however, returns could be disappointing.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.