America’s largest grocer Kroger Co (NYSE:KR) saw its stock get killed in mid-2017 after tech giant and retail killer Amazon.com, Inc. (NASDAQ:AMZN) gobbled up Whole Foods Market. Everyone was afraid that Amazon was going to do to grocers what it had already done to retailers, and that would mean bad things ahead for Kroger.

But KR stock rebounded from that selloff as the company reported back-to-back solid quarters. It went all the way from $20 to $30 in a hurry.

That rally was cut short recently after the grocer reported decent fourth quarter numbers but gave a pretty awful guide for 2018. Instead of the tax reform windfall falling to the bottom line (KR is a big tax payer), it’s going back into the business to stave off competition. That means despite a dramatically lower tax rate next year, earnings are expected to be flat year-over-year.

KR stock dropped like a rock. It is now hovering around $24.

Is there opportunity in the rubble? I think so. Competition concerns will continue to hang over KR stock. But the stock is now dirt cheap. And this stock tends to rally when it’s dirt cheap, regardless of those competition concerns.

Here’s a deeper look.

Competitive Concerns Hang Over Kroger

I’m a big believer that grocery stores aren’t going anywhere any time soon. Even though the popularity of online grocery shopping has increased in intensity, grocery shopping has remained largely in the brick-and-mortar format.

That is why Amazon bought Whole Foods and why Chinese tech giants Alibaba Group Holding Ltd (NYSE:BABA) and JD.Com Inc (ADR) (NASDAQ:JD) are making big pushes into China’s physical grocery market.

Because a majority of grocery shopping will be done in the brick-and-mortar format into the foreseeable future, Kroger will be around for a lot longer. This company isn’t going the way of empty malls. It will continue to sell a lot of products to a lot of customers for a long time.

But competition in that brick-and-mortar format is heating up. Of course, there is Amazon’s excursion into the space through Whole Foods. But Whole Foods doesn’t have much overlap with Kroger customers. Whole Foods is premium-end grocery shopping, while Kroger customers like lower price points.

Instead, Kroger should be worried about the aggressive grocery rollouts at Walmart Inc (NYSE:WMT) and Target Corporation (NYSE:TGT).

Both of those companies are rolling out low-price grocery offerings, naturally putting them into competition with Kroger. Plus, Walmart and Target offer more all-in-one convenience, an advantage that could prove to give WMT and TGT the upper hand.

From this perspective, when I see that Walmart is expanding its grocery delivery service to 100 cities by the end of the year (up from six currently), I get nervous for Kroger. A widespread rollout of low-price grocers means more direct competition for KR.

But Kroger Stock Is Cheap

Despite the competition, there are reasons to believe Kroger will continue to operate as America’s largest grocer for the next several years. And that KR stock will grind higher from these depressed levels.

Digital sales are booming, meaning that the company is appropriately adjusting to the era of omnichannel commerce. Kroger has also successfully pivoted into organic foods, so it’s not missing out on the health trend.

Meanwhile, private-label brands recorded record unit share in 2017. The success of private-label brands for Kroger is somewhat similar to the success of original content for Netflix, Inc. (NASDAQ:NFLX), in that it adds to the company’s moat amid bigger competition. So that is a pretty big positive and implies longevity for the business.

Altogether, comparable sales growth is still positive, and the company is still gaining market share. Margins are under pressure and expected to remain under pressure, but Kroger is investing in things that will make it more efficient. In other words, margins could stage a pretty big comeback over the next several years.

Positive comps on top of margin expansion from this year’s depressed base should lead to healthy earnings growth over the next five years. But KR stock is trading at just above 11 times forward earnings. That is pretty cheap. Its five-year average forward earnings multiple is 15.

That is a healthy discount. Once margins start to rebound on still-positive comparable sales growth, investor sentiment will turn, and KR stock will trend back to its normal valuation.

Bottom Line on KR Stock

Competitive threats hang over KR stock. So long as Amazon, Walmart and Target continue to aggressively push out grocery, KR stock won’t return to its 2015 highs of around $40.

But at $24, KR stock is undervalued. That is why I’m a buyer on the big dip.

As of this writing, Luke Lango was long KR, AMZN, BABA, JD and TGT.