Is Kroger Stock Overheating?

The Kroger Co.’s stock price has surged to a price of $54.3 today. Ending the day with a 7.5% increase, KR shares outperformed the S&P500 by 7.0% and closing in on their 52 week high of $54.45 Over the last 12 months, Kroger is up 6.9%, and has outperformed the S&P 500 by -23.4%. Now, the Large-Cap Consumer Staples company is 5.3% above its average target price of $51.56 and has an average analyst rating of buy.

Kroger's trailing 12 month price to earnings (P/E) ratio is 21.1, which is its share price divided by its trailing earnings per share (EPS) of $2.57. The company has a forward P/E ratio of 12.5 based on its forward EPS of $4.34 -- which is an estimate of future earnings provided by management. The P/E ratio tells us how much investors are willing to pay for each dollar of the company's net earnings from its sales operations. By way of comparison, the average P/E ratio of the Consumer Staples sector is 21.21.

An alternative form of measuring a company's valuation is to focus on its Price to Book (P/B) Ratio, or the company's market price per share divided by its book value per share. The book value refers to the present value of the company if it were to be liquidated today (i.e. selling all assets and paying off all debts). Kroger's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 4.0, but is still below the average P/B ratio of the Consumer Staples sector, which stands at 4.12.

Since it has a an average P/E ratio, an average P/B ratio, and weak net margins, Kroger is probably overvalued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.