2 Small-Cap Grocery Stocks Rated Strong Buy

assorted bottles on display in store

Source: Unsplash

Restrictions on restaurant patronage and strict social distancing measures have increased at-home food consumption and, thus, the demand for groceries. To capitalize on this trend, while many brick-and-mortar groceries retailers have focused on enhancing their online presence, many e-commerce giants ventured into groceries. Overall, companies that have been able to exploit opportunities to sell groceries have thrived amid the pandemic. The global food and grocery retail market size is expected to grow at a CAGR of 5% over the next seven years.

But many analysts are of the opinion that the stellar sales growth that online grocery channels have generated may not continue. They fear that many grocery retailers may witness only modest growth or even a decline in sales in the future with restaurant patronage returning to pre-pandemic levels. So, many grocery stocks that are trading at high valuations could witness a retreat.

However, because the online shopping trend is expected to continue even after the pandemic is vanquished, we think fundamentally sound small-cap grocery stocks such as  Ingles Markets, Incorporated (IMKTA - Get Rating) and Weis Markets, Inc. (WMK - Get Rating) should gain significantly.

Ingles Markets, Incorporated (IMKTA - Get Rating)

Headquartered in Asheville, IMKTA is a leading grocer that operates 197 supermarkets in six southeastern states. The company’s segments include retail grocery and other segments, which consist of fluid dairy operations and shopping center rentals. The company focuses on selling products to its customers through the delivery of organic products, bakery departments, and prepared foods, including delicatessen sections.

Last November, IMKTA partnered with the U.S. Department of Health and Human Services (HHS) to administer  COVID-19 vaccines through Ingles Markets Pharmacy.

IMKTA’s net sales have increased 10.4% year-over-year to $1.19 billion in the first quarter, ended December 26, 2020. Its gross profit has increased 22% from its year-ago value to $314.19 million, while its income from operations has risen 98.7% to $76.44 million over the same period. Its EPS (Class A) has improved 203.33% year-over-year to $2.73 over the three-month period.

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