Grocers like Kroger (KR) are already facing an incredibly competitive market. Margins in the sector are already razor-thin, and will get even worse as wages start to rise. Kroger will have to decide how much to lift prices as their wages increase and if inflation leads to higher prices at the company’s suppliers. Wall Street is already bearish on the stock following an in-line Q4 report in early March, which drove shares sharply lower. With the recent sell off, the valuation looks OK, with a trailing P/E of 14.0, but earnings growth is low, and analysts forecast average annual earnings growth of 4.0% over the next five years. The low growth estimates will keep the stock from enjoying any meaningful runs higher, and if Kroger decides to keep prices constant while wages rise in order to maintain customer loyalty, the bottom line will increase even less than expected, and the stock will have a hard time moving forward.
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