Crawshaw Group

Shares in meat and food-to-go retailer Crawshaw Group (LSE: CRAW) have slumped by 7% in the last month. Looking ahead, there could be further challenges to come since the company is forecast to stay in the red in the current year. Certainly, its pre-tax loss of £0.34m from last year is due to narrow to £0.2m this year, but with concerns already being high for the wider retail sector, investor sentiment in Crawshaw could decline further.

While Crawshaw is expected to move back into profitability in 2016, this appears to be more than adequately priced-in by the market. For example, Crawshaw trades on a forward price-to-earnings (P/E) ratio of 142, which indicates that now may not be the best time to buy.

Conviviality

Also falling in the last month have been shares in Conviviality (LSE: CVR), with the convenience store operator seeing its valuation fall by 7% during the period. Clearly, the convenience store space is becoming increasingly competitive as the major supermarket players continue to plough investment into it as frequent, smaller visits for groceries become increasingly popular among shoppers.

Despite this, Conviviality is expected to report strong bottom-line growth over the medium term, with its earnings forecast to rise by 44% in the current year, followed by growth of 15% in the next financial year. Even though it’s due to report such upbeat growth numbers, Conviviality trades on a P/E ratio of just 9.7, which when combined with its growth prospects equates to a price-to-earnings growth (PEG) ratio of just 0.3.

This indicates that there’s tremendous upside potential and with Conviviality offering a yield of 4.6% from a dividend that’s covered 2.3 times by profit, it seems to offer strong growth, value and income prospects.

Tesco

Meanwhile, shares in Tesco (LSE: TSCO) have slumped by over 7% in the last month as investor confidence in its turnaround story seems to be wavering. Of course, Amazon’s venture into online grocery shopping may be at least partly to blame as it brings a financially powerful business into the mix. And with Amazon being focused on the long term and on winning market share rather than on short-term profitability, Tesco’s financial performance could suffer.

However, with Tesco’s share price likely to be impacted by its ability to sell-off non-core assets such as food chain Giraffe and its success in streamlining the business through improved supply chain processes, its shares could still rise even if the supermarket sector becomes increasingly competitive. As such, it seems to be a worthy purchase at the present time – especially since it trades on a PEG ratio of just 0.4.

The post Will Tesco plc, Crawshaw Group plc and Conviviality plc keep on falling? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Tesco. The Motley Fool UK owns shares of and has recommended Amazon.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Amid the gloom, there were a couple of bright spots for me.

Shares in embattled supermarket Tesco (LSE: TSCO) finished the week on a high following a positive note from stockbrokers at fellow FTSE 100 company Barclays. And much, much further down the market cap, shares in meat and food-to-go retailer Crawshaw (LSE: CRAW) headed higher as investors welcomed a positive Christmas trading statement.

All still to do

Despite the upgrade and the associated rise in the share price, I feel that management at Tesco still has it all to do. Firstly, there’s the issue of sluggish sales in the most important part of the business – the UK. Here competition has never been so fierce on all fronts with Aldi and Lidl, the so-called discounters, at one end and Asda, J Sainsbury and WM Morrison at the other.

Secondly, management has to address a challenging consumer environment elsewhere in the group, and while sales in Europe and Asia actually rose in the first half, I don’t believe that it will all be plain sailing with economic growth patchy to say the least across the world.

All in, I believe that CEO Dave Lewis is righting the ship, but like a supertanker, this will take time.

Building a head of steam

Meanwhile, further down the market, Crawshaw has been quietly going about its business, by doing exactly what it says on the tin – selling a wide variety of quality fresh meats and food-to-go at value prices.

And on average, Crawshaw is around 33% cheaper than the big four supermarkets across a wide variety of meats, chicken and sausages. So it’s no wonder that business has been booming in its 39 outlets across the North and Northwest of the UK.

Investors seemed pleased with the in-line update from management last week, this despite the northern half of the country battling against levels of flooding not seen for some years.

Which one should you buy?

Well, for me the answer is fairly simple. Do you want to own a company that’s facing intense competition, has a fair chunk of debt, and is currently reducing its footprint. Or would you prefer something quite the opposite?

While I rate both management teams here, I believe that Crawshaw can continue to grow in its niche for some time to come. As we’ve seen from Aldi and Lidl, if you offer quality at the right price, the customers will come.

And, as evidenced by the chart below, investors seem to believe in Crashaw currently. Though the shares don’t look like a bargain at present, I believe that in years to come this company could at least double, possibly triple, in size making the shares seem more reasonably priced.

The post Why I Would Still Steer Clear Of Tesco plc But Buy Crawshaw Group plc appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, things do not appear to be all set to get better in the short run. The likes of Aldi and Lidl are now intent on moving into previously unchartered territory of central London, with the discount, no-frills operators targeting the mid to upper price point clientele with their brand of low cost/high quality products.

As a result of this increased competition across the UK, the outlook for Sainsbury’s bottom line is rather downbeat. For example, it is forecast to post a 19% fall in its net profit in the current year, with a further 1% decline due for next year. Neither of these figures seem likely to positively catalyse investor sentiment in the stock which, on the face of it, could mean further share price falls.

However, where Sainsbury’s has real potential is with regard to its long term prospects. Although we are now out of the credit crunch, consumers have still not shaken off the fear which was present for a prolonged period. This was at least partly due to wages rising by less than inflation for a sustained period, and meant that price became a much more important factor for them in their shopping decisions.

And, while disposable incomes are now rising in real terms, this situation has only been present for a number of months. In other words, it will take time for shoppers to begin to focus on things other than price, such as quality, convenience and customer service. As such, Sainsbury’s could still post impressive earnings growth over the medium term as the market begins to finally turn in its favour and shoppers return to mid-price point operators.

In addition, Sainsbury’s shares are very cheap at the present time. They trade on a price to earnings (P/E) ratio of only 10.7 (taking into account the forecast fall in its earnings) and a price to book value (P/B) ratio of just 0.81. Both of these figures indicate that Sainsbury’s provides upward rerating potential over the medium to long term.

Meanwhile, sector peers such as Greggs (LSE: GRG) and Booker (LSE: BOK) may offer far better earnings growth prospects in the near term, but their valuations appear to already price in such impressive levels of performance. For example, Greggs trades on a P/E ratio of 21 and, while its bottom line is expected to rise by 7% next year, this equates to a price to earnings growth (PEG) ratio of 2.9, which indicates that the company’s share price gains could be limited.

Similarly, Booker is due to continue its double-digit earnings growth figures of recent years by posting a rise in its bottom line of 11% next year. While impressive and providing evidence that the company’s strategy is paying off after a disappointing year in 2013, Booker trades on a P/E ratio of 24.8, which indicates that there is little scope for a rating rise in the medium term.

Furthermore, while meat and food-to-go retailer Crawshaw Group (LSE: CRAW) has released a very encouraging trading update today, the company lacks valuation appeal of Sainsbury’s. Certainly, its share price performance this year has been superb, with it rising by 29% year-to-date (including a 9% gain today). And, its performance for the full-year is now expected to be better than previous expectations. But, it trades on a P/B ratio of around 2.5 and has a historic P/E ratio of 55. Therefore, while the company is progressing well, Sainsbury’s appears to have more appeal on valuation grounds.

The post Why I’d Buy J Sainsbury plc Over Greggs plc, Booker Group Plc And Crawshaw Group Plc appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has recommended Booker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.