With headlines screaming "Amazon (AMZN) has passed Walmart (WMT) to become the world's largest retailer," I was looking at the chart for Kroger (KR, Financial) yesterday, and to my surprise, I noticed that the stock of the company has caught up with that of Amazon in terms of growth since the start of the pandemic downturn on Feb. 19, 2020. As per the chart below, both stocks are up around 50% since then.
Even Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A)(BRK.B) seems to think Kroger is a good value opportunity, as the firm increased its stake in the grocery retailer in the second quarter. Buffett boosted the position to 61.8 million shares as of June 30, up frm 51.1 million at the end of the March quarter.
The pandemic seems to have resulted in some changes in habits for many American consumers, and some of these changes may persist for a long time. It has forced many to learn how to cook, shop for fresh food and become more health conscious. It has also made many more budget-conscious. This prompts more trips to the grocery store.
Another factor is the rise of inflation, which has increased the cost of just about everything, including food. Customers looking to reduce their spending on food are more likely to spend more at the grocery store compared to the more expensive food from restaurants.
Looking at the various Kroger metrics over the last 10 years, we see that the stock price has gone from an index of 100 to 382 (green line), and the same goes for earnings per share (eps). Revenue per share (black line) has more than doubled, while book value per share has more than tripled.
The actual numbers are charted below. However, it's easier to appreciate the growth trajectory of the metric via a chained index with a common starting point, as in the above chart. The methodology of the chained index is described here.
Other metrics are impressive as well. Kroger has a return on equity of over 15%, The forward price-earnings ratio is reasonable at around 15. The balance sheet is solid (see chart below). The company pays a modest dividend of about 1.8%, which is growing at double-digit rates.
Conclusion
Kroger may seem like a tortoise next to the hare that is Amazon, but in this situation, I think of the old story of the tortoise and the hare. The hare may have taken off the fastest, but once it got over-confident enought to take a nap, the tortoise eventually won the race. I'm inclined to agree with Buffett that the stock is an attractive buy at current levels.
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