Kroger shares fell by -1.9% during the day's morning session, and are now trading at a price of $53.84. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
an Increase in Expected Earnings Improves Its Value Outlook but Its Shares Are Expensive:
The Kroger Co. operates as a food and drug retailer in the United States. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 22.08 and an average price to book (P/B) ratio of 3.05. In contrast, Kroger has a trailing 12 month P/E ratio of 18.4 and a P/B ratio of 4.36.
Kroger's PEG ratio is 1.52, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Firm Has a Declining EPS Growth Trend:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $121,852 | $122,286 | $132,498 | $137,888 | $148,258 | $150,039 |
| Gross Margins | 22% | 22% | 23% | 22% | 21% | 22% |
| Net Margins | 3% | 1% | 2% | 1% | 2% | 1% |
| Net Income (M) | $3,110 | $1,659 | $2,585 | $1,655 | $2,244 | $2,164 |
| Net Interest Expense (M) | $620 | $603 | $544 | $571 | $535 | $441 |
| Depreciation & Amort. (M) | $2,465 | $2,649 | $2,747 | $2,824 | $2,965 | $3,125 |
| Diluted Shares (M) | 807 | 780 | 752 | 724 | 725 | 725 |
| Earnings Per Share | $3.85 | $2.13 | $3.44 | $2.29 | $3.1 | $2.98 |
| EPS Growth | n/a | -44.68% | 61.5% | -33.43% | 35.37% | -3.87% |
| Avg. Price | $25.01 | $23.3 | $30.3 | $37.5 | $50.02 | $53.84 |
| P/E Ratio | 6.41 | 10.94 | 8.81 | 16.38 | 15.98 | 17.95 |
| Free Cash Flow (M) | $1,197 | $1,536 | $3,950 | $3,576 | $1,420 | $2,884 |
| CAPEX (M) | $2,967 | $3,128 | $2,865 | $2,614 | $3,078 | $3,904 |
| EV / EBITDA | 6.94 | 5.83 | 6.09 | 6.04 | 6.51 | 7.61 |
| Total Debt (M) | $15,835 | $12,629 | $13,149 | $11,869 | $12,005 | $10,385 |
| Net Debt / EBITDA | 3.01 | 2.13 | 1.97 | 1.74 | 1.45 | 1.37 |
| Current Ratio | 0.78 | 0.83 | 0.8 | 0.76 | 0.8 | 0.81 |
Kroger has growing revenues and increasing reinvestment in the business, generally positive cash flows, and healthy leverage levels. However, Kroger has slimmer gross margins than its peers, declining EPS growth, and not enough current assets to cover current liabilities because its current ratio is 0.81.
