The grocery retail industry is expected to remain resilient due to inelastic demand and a growing inclination towards the e-commerce platforms. Therefore, I think fundamentally sound grocery stocks DFI Retail Group Holdings Limited (DFIHY), Casey's General Stores, Inc. (CASY), and Village Super Market, Inc. (VLGEA) could be smart investments.
The global grocery retail market is projected to reach $14.77 trillion by 2030, growing at a CAGR of 6.9%. Various consumer-oriented features of grocery retail stores, such as fair price, quality, variety of products, and convenience, help them stay competitive in the defensive 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 suggests consumer spending remained strong over the holiday season.
The market for online grocery stores in the United States is primarily driven by rising disposable income and a growing preference for comfort. The rising millennial populace and developing internet business market have additionally added fuel to the development of the market. The diverse options for online payments and the assurances for contactless delivery of the ordered groceries offered by online grocers are expected to contribute to the market's growth.
The US online grocery market is expected to reach $59.94 billion by 2030, growing at a CAGR of 9.3%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Grocery/Big Box Retailers stocks, beginning with the third choice.
Stock #3: DFI Retail Group Holdings Limited (DFIHY)
Based in Quarry Bay, Hong Kong, DFIHY operates as a retailer in Asia. The company operates through five segments: Food; Health and Beauty; Home Furnishings; Restaurants; and Other Retailing.
DFIHY’s trailing-12-month gross profit margin of 34.11% is 2.5% higher than the industry average of 33.28%. Its trailing-12-month asset turnover ratio of 1.30x is 52.2% higher than the industry average of 0.85x.
For the six months that ended June 30, 2023, DFIHY’s revenue stood at $4.57 billion, up marginally year-over-year, while its operating profit increased 22.8% year-over-year to $92.80 billion. For the same period, its profit after tax and earnings per share stood at $5.30 million and $0.61 compared to a loss after tax and loss per share of $64.50 million and $4.25 in the year-ago period.
Street expects DFIHY’s revenue to increase marginally year-over-year to $9.19 billion for the year ended December 2023.
DFIHY’s shares have declined 18.5% over the past six months to close the last trading session at $10.60.
DFIHY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Stability, and Quality. It is ranked #10 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what is stated above, we’ve also rated DFIHY for Value, Sentiment, and Momentum. Get all DFIHY ratings here.
Stock #2: Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey's and Casey's General Store names. Its stores offer pizza, donuts, breakfast items, and sandwiches; and tobacco and nicotine products. The company’s stores provide soft drinks, energy, water, sports drinks, juices, coffee, tea and dairy products, beer, wine, and spirits, snacks, candy, packaged bakery, ice cream, meals, and appetizers, health and beauty aids, automotive products, etc.
CASY’s trailing-12-month ROTA of 7.78% is 66.9% higher than the industry average of 4.66%. Its trailing-12-month asset turnover ratio of 2.43x is 185.2% higher than the 0.85x industry average.
For the fiscal second quarter, which ended October 31, 2023, CASY’s total revenue came in at $4.06 billion, up 2.2% year-over-year. The company’s adjusted EBITDA increased 11.1% over the prior-year quarter to $307.07 million. In addition, its net income increased 15.4% year-over-year to $158.78 million. Also, its EPS came in at $4.24, representing an increase of 15.5% year-over-year.
Street expects CASY’s revenue to increase marginally year-over-year to $15.21 billion for the fiscal year ending April 2024. Its EPS is expected to grow 7.8% year-over-year to $12.84 for the same year. It surpassed EPS estimates in three of four trailing quarters, which is impressive.
Shares of CASY has gained 24.1% over the past year to close the last trading session at $285.58.
It’s no surprise that CASY has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
CASY has a B grade for Sentiment and Quality. It is ranked #8 in the same industry.
In addition to the POWR Ratings highlighted above, one can access CASY’s ratings for Momentum, Growth, Stability, Value, and Sentiment here.
Stock #1: Village Super Market, Inc. (VLGEA)
VLGEA is a nationwide chain of supermarkets that offers various goods, such as prepared foods, frozen goods, dairy products, meat, produce, and seafood. Additionally, it offers non-food items through retail and online stores, including general merchandise, liquor, pharmacy products, and health and beauty products.
VLGEA’s trailing-12-month ROCE of 12.09% is 6.7% higher than the industry average of 11.33%. Its trailing-12-month asset turnover ratio of 2.26x is 166% higher than the industry average of 0.85x.
In the fiscal first quarter that ended October 28, 2023, VLGEA’s sales stood at $536.35 million, up 3.2% year-over-year. The company’s gross profit rose 2.5% year-over-year to $152.95 million, and operating income came in at $14.15 million. Moreover, its net income increased 4.5% year-over-year to $11.59 million.
Over the past six months, the stock has gained 10.3% to close the last trading session at $25.71.
VLGEA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Stability and Value and a B in Quality. It is ranked #4 in the same industry.
Click here to access the additional VLGEA ratings (Growth, Sentiment, and Momentum).
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CASY shares were trading at $285.96 per share on Monday afternoon, up $0.38 (+0.13%). Year-to-date, CASY has gained 4.08%, versus a 1.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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