How Do Supermarkets’ Valuations Compare?



SFM maintains its status

Sprouts Farmers Market (SFM) continues to be the most expensive supermarket stock, trading at a one-year forward price-to-earnings ratio of 29x. The Fresh Market (TFM), Whole Foods Market (WFM), and Kroger (KR) currently trade at 18.9x, 18.8x, and 15.8x, respectively. SuperValu (SVU) continues to lie at the bottom, trading at just above 7x. This has been the story for some time now. While TFM, WFM, and KR keep changing places, SFM and SVU continue to place at the top and bottom of the spectrum.

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SFM continues to outshine peers

In regards to earnings potential, SFM and SVU continue to hold their top and bottom slots, with a next-12-month EPS (earnings per share) growth of 14% for SFM and a decline of 6.7% for SVU. With 6.4%, SFM has had the highest operating margin over the last 12 months. SVU has the lowest last-12-month operating margin of 2.6%.

Whole Foods loses pace in the wake of competition

Whole Foods Market (WFM) continues to be a victim of rising competition. The company has seen a deceleration in its same-store sales over the last five consecutive quarters, registering negative 1.8% sales comps in the most recent quarter, which ended January 17, 2016. The company’s operating margin fell to 2.6% in the final quarter of 2015, which ended September 27, 2015, after averaging 6.7% in 2013 and 2014.

Kroger remains strong at low valuations

With a one-year forward PE (price-to-earnings) multiple of 15.8x, Kroger (KR) does not have an extremely high valuation. However, it has a decent past performance, with 49 consecutive quarters of positive same-store sales, and a strong earning potential with a next-12-month growth of 8.2%. Additionally, the company is currently operating at the lower end of its 52-week PE range of 15.7x to 19x. Investors looking for supermarket stocks may choose to pick Kroger, as the company has strong fundamentals offered at low valuations. Investors looking for exposure to Kroger through ETFs could invest in the First Trust Consumer Staples AlphaDEX ETF (FXG). The company constitutes 4.4% of the ETF.


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