Indeed, I think that Sainsburys long-standing chief executive, Justin King, stepped aside at just the right moment ahead of an expected downturn in the supermarkets profits over the next couple of years.
Sainsburys share price has now fallen by 28% from its 52-week high of 428p so is now a good time to buy?
Lets start with the basics: how is Sainsbury valued against its historic and forecast earnings?
|P/E ratio||Current value|
|P/E using 5-year average adjusted earnings per share||10.8|
|2-year average forecast P/E||10.4|
Source: Company reports, consensus forecasts
Based on these figures, Sainsbury looks very reasonably priced at the moment, although its noticeable that the firms forecast P/E is slightly lower, highlighting the markets expectations for a fall in earnings this year.
What about the fundamentals?
Sainsburys sales, profits and dividend payments have all grown steadily over the last five years, as these figures show:
|Financial summary||5-year compound average growth rate|
|Underlying pre-tax profit||5.5%|
|Adjusted earnings per share||6.5%|
Source: Company reports
However, its worth noting that these apparently solid profits have not translated into free cash flow, thanks to the firms heavy investment in new stores.
Last year, for example, the Sainsburys net debt rose by 222m, once the cash acquired with Sainsburys Bank was stripped out. This means that the majority of last years 320m dividend payment was effectively funded by borrowing, as it was in 2012/13.
Given this, perhaps its not surprising that consensus forecasts currently suggest that Sainsburys dividend could fall by around 4.5% this year, to 16.5p.
Buy or sell?
Unlike Tesco and Morrison, Sainsbury looks reasonably healthy and has not suffered the dramatic slides in sales seen at the other two firms. On the face of it, now would be a great time to buy.
Theres only one risk.
Morrisons sales have slumped, and the firm is busy slashing prices. Tescos sales are also down, and I expect the firms new CEO, Dave Lewis, to follow Morrisons example, and kick off a price war this autumn.
Sainsburys seems to have escaped so far, but it may simply be the last to arrive at the party. This could be a problem, as Sainsburys profit margins are already lower than those of Morrison and Tesco, giving the more upmarket firm less room to manoeuvre on price.
I think the risks are evenly balanced for Sainsbury, and rate the supermarket as a hold. However, I dont think the firm is the best opportunity in todays market far from it, in fact.
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Roland Headowns shares in Wm. Morrison Supermarkets and Tesco. The Motley Fool UK owns shares in Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.