Kohl’s is looking strong on the eve of today’s earnings announcement, reports Joe Duarte...
Growth Investors can Nibble on this Grocery IPO
09/06/2019 5:00 am EST
There aren’t many grocery stores that make it onto our growth-oriented screens, but Grocery Outlet (GO) — a recent IPO — is one, observes Mike Cintolo, editor of Cabot Growth Investor.
The company is an “extreme value” grocer of name-brand consumables, offering a treasure hunt-type of experience for consumers that, according to the company, save 40% on items compared to conventional grocers and a 20% savings compared to discounters.
Grocery Outlet requires no membership fees or bulk purchases, either. Stores are relatively small, feature wide aisles and have a “WOW” wall where all the best deals of the day are found.
Interestingly, each store is operated by an independent, local operator that usually favors local goods; that said, the company as a whole gets merchandise at a significant discount, targeting manufacturer overruns, approaching “sell by” dates and packaging changes.
As for the store count, the firm currently operates 330 stores in just six states — but it believes it can double its store base just in those states (!), with an additional 1,600 possible in neighboring states.
The firm’s growth won’t blow your doors off but it’s very steady — sales have risen between 10% and 12% each of the past five quarters (thanks in part of healthy same-store sales, which were up 5.8% in Q2), and earnings look set to grow decently from here ($0.71 per share this year, then rising 17% in 2020).
The valuation isn’t cheap (59 times earnings estimates), but the bet is that the company can crank out years of mid-teens growth. As for the stock, frankly, it’s way too thin for us right now, but the trading since the IPO (including GO’s earnings pop a couple of weeks ago) is encouraging.
We’re OK nibbling around here with a loose stop, though we’re more interested in keeping an eye on it and seeing if the stock can “grow up” (gain liquidity and attract more big investors) going forward. It certainly has the fundamental story to enjoy a sustained run.
Related Articles on CONSUMER
We are maintaining our "buy" rating on Wendy’s Co. (WEN); we believe that Wendy’s has re...
In my opinion, the retailer that’s most likely to make the best use of the weakening economic ...
Stocks chosen for our "Buy Low Opportunities Portfolio" are ones that appear capable of a big reboun...