The Kroger Co (KR, Financial) recently experienced a daily loss of -3.39%, yet it has gained 21.23% over the past three months. With an Earnings Per Share (EPS) of $2.96, investors are keen to understand if the stock is modestly overvalued as suggested by its current valuation. This article delves into the intrinsic worth of The Kroger Co (KR) and whether its market price reflects its true value.
The Kroger Co (KR, Financial) stands as a giant in the US grocery retail sector, operating more than 2,700 stores under over 20 supermarket banners. The company's market cap of $40 billion and sales of $150 billion highlight its significant presence in the industry. With a fair value (GF Value) estimated at $48.25, the stock's current price of $55.37 suggests it may be modestly overvalued. But what does this mean for potential investors? Read on to uncover a detailed valuation analysis of The Kroger Co (KR).
Understanding the GF Value of The Kroger Co (KR, Financial)
The GF Value is a unique valuation tool that calculates a stock's intrinsic value by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line is a visual representation of this fair value, guiding investors on where the stock price should ideally be.
If The Kroger Co (KR, Financial)'s stock price hovers significantly above the GF Value Line, it may indicate an overvalued state, suggesting poorer future returns. Conversely, a price well below the line could signal undervaluation and potentially higher future returns. At its current price, The Kroger Co appears modestly overvalued, which could imply a lower long-term return compared to its business growth.
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Financial Strength of The Kroger Co (KR, Financial)
Investing in companies with solid financial strength is crucial to mitigate the risk of permanent loss. The Kroger Co's cash-to-debt ratio of 0.16 places it below 72.82% of its peers in the Retail - Defensive industry. With an overall financial strength rating of 6 out of 10, The Kroger Co's financial health is deemed fair.
Profitability and Growth Prospects of The Kroger Co (KR, Financial)
Profitable companies are generally safer investments, and The Kroger Co has maintained profitability for the past decade. With a revenue of $150 billion and an EPS of $2.96, it has demonstrated strong financial performance. However, its operating margin of 2.08% is lower than many competitors in the Retail - Defensive industry. Still, its profitability rank is an impressive 8 out of 10.
Growth is also a vital factor in valuation. The Kroger Co's 3-year average revenue growth rate is better than 57.82% of its industry peers, but its EBITDA growth rate of 1.3% is below the industry median. This mixed growth profile is an important consideration for investors.
ROIC vs. WACC for The Kroger Co (KR, Financial)
An effective way to assess profitability is by comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). The Kroger Co's ROIC of 5.44 is currently below its WACC of 6.71, indicating that it may not be creating value for shareholders at this time.
Conclusion
In conclusion, The Kroger Co (KR, Financial) is perceived to be modestly overvalued based on its current market price relative to its GF Value. The company's financial condition is fair, and it boasts strong profitability. However, its growth is not leading the industry, which could influence its valuation. For a more in-depth look, investors can explore The Kroger Co's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
