While the rest of the stock market has been under severe pressure, Kroger (NYSE:KR) has avoided the deep losses that so many other stocks have suffered from. KR stock hasn’t been immune to market-wide volatility, but it has held up much better than most.
Kroger shares are just 3.3% off the highs, much better than the S&P 500, which is down 16.2%. When the index topped out on Feb. 19, the S&P 500 fell about 36% before bottoming out. KR stock fell less than 8.5% to its low. That said, shares did fall almost 12% from the 2020 high, but that’s not really the point.
The point is that Kroger continues to outperform the market, as shares were making new 52-week lows in March, while the markets were making new 52-lows. Let’s look at a few reasons why that can continue going forward.
Kroger Has Momentum
KR stock has been on fire, but that should come as little surprise. Consumers are flocking to big-box retailers like Kroger, Target (NYSE:TGT), Costco (NASDAQ:COST) and others. They need essential supplies, food and alcohol to make it through this pandemic. Believe it or not, you can’t get everything from Amazon (NASDAQ:AMZN). At least not yet.
In that regard, Kroger is playing an important role for the public. It’s one of the nation’s largest grocery chains and is one of the few areas of retail that is not only surviving, but potentially thriving under the current environment. Not everyone has to buy shoes or clothes, but everyone has to eat.
At the beginning of the month, Kroger reported a 30% rise in comparable-store sales for March. The company said:
“Sales sharply accelerated in March with identical retail supermarket sales without fuel up approximately 30 percent. This was driven by dramatically heightened demand in the middle of the month as customers were stockpiling, which then tapered, but remained higher than normal in the final week, as customers adjusted to the new dining, work and travel restrictions. The demand has been broad based across grocery and fresh departments.”
That momentum in business has carried over to momentum on the charts. As you can see on the daily chart, KR stock has been making a series of higher lows — even before the novel coronavirus outbreak.
However, investors can also see that this stock became a go-to name almost immediately once the broader market started to come under pressure. Note that shares were topping in mid-March when the overall market was bottoming.
After finding its footing, KR stock is now pushing through $32 resistance. A push through $34 puts $36-plus in play with the possibility of new highs.
Valuing KR Stock
As you can see, Kroger has momentum in its business and on the stock charts, but there’s more to like than the technicals and a short-term burst of sales.
Get this. Shares trade at just 13.1 times this year’s earnings estimates. That’s an incredibly low valuation by most investors’ standards, particularly for a stock that’s doing well right now.
Analysts expect 3.1% revenue growth this year alongside 14.6% earnings growth. For 2021, current estimates call for just sub-1% sales growth and a sub-1% decline in earnings growth. Essentially flat growth in 2021 is not the type of secular growth story investors pound the table on. However, the fact that analysts believe Kroger can maintain 2020’s levels of business in 2021 amid the current growth spike is actually kind of impressive. Couple that with a near-2% dividend yield and KR stock is suddenly looking pretty attractive.
Obviously Kroger isn’t a stock that investors should be paying an above-market multiple for. But investors could do a lot worse than pay 13 times earnings for double-digit profit growth this year and a 2% dividend yield when rates are near-zero. With that in mind, KR stock is a buy for investors, particularly with shares in a possible breakout.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.