satyr

Grocery Stocks: Fallout Coming in Highly Competitive Industry

There are several points here which are either unsupportable, or have been arrived at through faulty logic. I will not attempt to address all of them, but here a few.

1) There is an implied assumption that retailers cannot raise prices or size down product in order to favorably impact margins.

2) The statement that "it appears that the impact of the conditions described above has not been priced into future earnings expectations" might have made some sense had it been written 6 to 12 months ago. We are currently living in recessionary times, so unless you are predicting that the economy will weaken significantly from here, it is more appropriate to use current conditions as a proxy for short-term future conditions.

3) Wal-mart and Target have been competing with mainstream grocery for quite some time. They have something to offer (price), but don't compete well in terms of convenience or quality. There are very large market segments that will not purchase groceries (or anything else) in those stores, because of the negative customer experience.

4) Whole Foods has essentially been pardoned in this analysis because they are a niche player. How does being a niche player justify a higher valuations? If you are going to use PEG, ROA, PE, et cetera to make decisions, the use them.

5) I am not familiar with some of these companies, so I can't speak to whether or not they are well-managed or what their prospects might be. I do follow SWY, and while I would not necessarily suggest that they are the best long play in the market, I think that they are one of the worse choices available as a short.