The grocery industry is expected to grow as a result of increased consumer spending, urbanization, technological advancements, and a growing emphasis on health and wellness.
Given the industry’s growth prospects, fundamentally strong grocery stocks Colruyt Group N.V. (CUYTY), Marks and Spencer Group plc (MAKSY) and Natural Grocers by Vitamin Cottage, Inc. (NGVC) might be worth buying.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the grocery industry.
Retail sales in the US rose 0.6% month-over-month in December 2023, following an upwardly revised 0.3% increase in November. This increase in retail sales shows a strong trend in consumer spending, which could support overall economic growth.
According to eMarketer's November 2023 forecasts, digital grocery sales would account for 13.7% of total US grocery sales in 2024, or $1.601 trillion. By 2025, digital groceries will be worth $253.89 billion in the United States.
This significant increase in digital grocery sales can be attributed to the growing popularity of online shopping platforms and the convenience they provide to customers.
The supermarkets and hypermarkets industry is projected to reach $4.99 trillion by 2028, with a CAGR of 7.8%. E-commerce integration, health and wellness trends, sustainability initiatives, globalization, store format innovation, enhanced customer loyalty programs, contactless shopping, and data-driven inventory management will all contribute to growth during the forecast period.
Considering these conducive trends, let’s look at the fundamentals of the three Grocery/Big Box Retailers stocks, starting with number three.
Stock #3: Colruyt Group N.V. (CUYTY)
Headquartered in Halle, Belgium, CUYTY together with its subsidiaries, engages in the retail, wholesale, food service, and other activities in Belgium, France, Luxembourg, and internationally. It operates through three segments: Retail; Wholesale and Foodservice; and Other Activities.
CUYTY’s trailing-12-month asset turnover ratio of 1.68x is 102.9% higher than the industry average of 0.83x. Its trailing-12-month ROTA of 15.08% is 219.5% higher than the industry average of 4.72%.
For the six months ended September 30, 2023, CUYTY’s revenue came in at €5.48 billion ($6 billion), up 16% year-over-year. The company’s adjusted EBITDA increased 54.5% over the prior-year quarter to €450 million ($492.51 million). In addition, its net result increased 908.9% year-over-year to €897 million ($981.74 million). Also, its EPS came in at €7.07, representing an increase of 923.5% year-over-year.
Analysts expect CUYTY’s revenue to come in at $11.61 billion for the fiscal year ending March 2024.The stock has gained 59% over past year to close the last trading session at $10.83.
CUYTY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CUYTY has an A grade for Growth and Stability and a B for Value and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #4 out of 38 stocks. To see additional POWR Ratings for Momentum and Sentiment for CUYTY, click here.
Stock #2: Marks and Spencer Group plc (MAKSY)
Based in London, the United Kingdom, MAKSY operates diverse retail stores, spanning clothing, home goods, and food across segments like UK Clothing & Home; UK Food; and International. Additionally, the company is involved in financial services, renewable energy, real estate, and online retail.
MAKSY’s trailing-12-month ROTC of 8.08% is 23% higher than the 6.57% industry average. Its trailing-12-month ROCE of 13.85% is 20.3% higher than the 11.51% industry average.
During the half year ended September 30, 2023, MAKSY’s revenue grew 10.8% year-over-year to £6.13 billion ($7.79 billion). The company’s operating profit and profit for the period amounted to £315 million ($400.13 million) and £206.90 million ($262.81 million), up 83.7% and 24.1% from the previous-year period, respectively. Moreover, its adjusted EPS rose 55.8% year-over-year to 12 pence.
The consensus revenue came in at $16.40 billion for the fiscal year ending March 2024 represents a 11.2% increase year-over-year. Its EPS is expected to grow 32% year-over-year to $0.57 for the same period. MAKSY’s shares have gained 51.6% past year to close the last trading session at $5.95.
It’s no surprise that MAKSY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Growth, Quality and Stability. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated MAKSY for Sentiment and Momentum. Get all MAKSY ratings here.
Stock #1: Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC is a retailer specializing in natural and organic groceries, supplements, and household items, offering science-based nutrition education programs to customers.
NGVC’s trailing-12-month ROCE of 17.04% is 48.1% higher than the industry average of 11.51%. Its 1.76x trailing-12-month asset turnover ratio is 112.2% higher than the 0.83x industry average.
In the first quarter, which ended December 31, 2023, NGVC generated net sales of $301.75 million, up 7.6% year-over-year. The company’s net income and net income per share of common stock rose 76% and 78.9% from the prior-year quarter to $7.76 million and $0.34, respectively. Moreover, its adjusted EBITDA grew 35.5% from the previous-year quarter to $18.75 million.
Shares of NGVC have gained 75.5% over past year to close the last trading session at $17.15.
NGVC has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
NGVC’s is ranked #2 in the same industry. It has an A grade for Sentiment and a B for Growth, Value, Stability and Quality. To see additional NGVC’s ratings for Momentum, click here.
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MAKSY shares were trading at $5.97 per share on Monday afternoon, up $0.02 (+0.35%). Year-to-date, MAKSY has declined -14.22%, versus a 5.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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