PEG Value Plays: Ingles Markets (NASDAQ: IMKTA), The Pantry Inc. (NASDAQ: PTRY) and Roundy’s Inc. (NYSE: RNDY)

PEG Value Plays: Ingles Markets (NASDAQ: IMKTA), The Pantry Inc. (NASDAQ: PTRY) and Roundy’s Inc. (NYSE: RNDY)

PEG Value Plays: Ingles Markets (NASDAQ: IMKTA), The Pantry Inc. (NASDAQ: PTRY) and Roundy’s Inc. (NYSE: RNDY)

The PEG ratio indicates an over or undervalued stock. It varies by industry and by type of company; although a rule of thumb is that a PEG ratio below one is desirable. The accuracy of the PEG ratio is dependent upon a number of factors. Accuracy is key and utilizing historical growth rates may provide an imprecise PEG ratio if future growth rates are expected to differ from past growth rates. This holds true for grocery store stocks and if your investment strategy hinges upon low REG ratios, there are several small-cap plays that offer low PEG ratios at nice entry points.

 Ashville North Carolina based Ingles Markets (NASDAQ: IMKTA) is a supermarket chain located in the Southeastern United States. The company operates 203 stores in Georgia, North Carolina, Virginia, Tennessee, South Carolina and Alabama. Ingles’ strategy has been to locate its markets in small towns and neighborhood shopping areas. Last month Ingles reported record 2012 sales of $3.71 billion. This marks the company’s astounding 48th successive year of sales growth. In addition Q4 sales for fiscal year 2012 rose a tidy 9.5 percent, up to $991.8 million.  Net revenue jumped 21.1percent to $13.3 million compared with the fourth quarter of 2011. Net income for fiscal 2012, increased 11.2 percent to $43.4 million compared with $39.1 million in fiscal 2011 totals. IMKT has a PEG ratio of 0.62 and has a trailing-twelve-month ROE of 9.77 percent. Ingles has a market cap of $436.17 million and is trading at $18.25. It currently has a strong buy rating from Zacks.

The Pantry Inc. (NASDAQ: PTRY) has a market cap of $285.83 million and is trading at $12.28. Over the past year the company has traded in a range of $11.25 to $16.36 and is 8 percent above the low. A prospective upside of 35.1 percent exists for The Pantry, based on a current level of $12.28 and analysts’ median consensus price target of $16.25. The company has a as a PEG ratio of 0.80 and a trailing-twelve-month operating margin of 1.22 percent. The Cary North Carolina based company operates over 1500 convenience stores in the Southern United States. It has had a few problems of late and was moved from a strong buy to a hold by Zacks. Even though the PEG is within desirable parameters, we advocate, as always, further research on this play.

Roundy’s Inc. (NYSE: RNDY), based in Milwaukee Wisconsin, is a supermarket chain with over 150 stores in Minnesota and Wisconsin and four stores in Illinois. The company has a market cap of $238.31 million and is trading at $5.21. It has ratio of 0.44 and trailing twelve month revenue is $3.88 billion. Social sentiment on the stock is currently neutral. It operates its retail outlets under the names Pick ‘n Save, Copps, Rainbow, Metro Market and Mariano’s. The company has been in business since 1887 and has over 1,800 employees on the payroll. Even though shares are selling cheaply, there is every indication that Q4 has shown marked improvements in revenue. Now may be a great time to get in on depressed share prices before Q4 results are announced  when prices are expected to jump. Roundy’s went public in 2012.

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  • Tyokunbo

    Ashville has very impressive numbers

  • mrgambale@gmail.com

    I like PTRY, good upside potential.

  • mrego123

    PTRY has a PEG of 2.48….earnings are expected to decrease 125% this year and has almost as much debt as cash. I like the other names better just based on valuation alone.

  • DanSlone

    Everybody’s got to eat, after all. Grocery chains in this 100-200 store range that are familiar hometown names can do extremely well if they’re run properly. A couple of decades ago I managed for a privately-held chain of a similar size that had been around since 1905 and was indeed a household name in its markets; both my mother and my father had worked for them at different times in their lvies. In the mid-90s a private equity firm bought it and ran it into the ground…very sad. At any rate, one of the main things I remember is that grocery stores run on very tight net margins. Volume tends to be huge–we had slightly over 100 stores and did a billion a year in sales in the early 90s–but it doesn’t take much to drift into the red. I like the looks of these, especially IMKTA and RNDY, but I would do a little research to find out what sort of reputation they have in the communities they serve–just to be sure.

  • Lillie

    I agree with Dan. Small town grocery stores are well loved by the residents and even when larger players move into town the customers have a tendency to stay with the familiar option. In other words the novelty soon wears off of the newer store. All things being equal I live in the South and know all three of these stores and have to say that I prefer Ingles over Walmart for groceries and investment options.

  • mrgambale@gmail.com

    Its all about their reputation and the quality of product. I like RNDY, good entry point.

  • meikoacebo

    This looks a good list. I have used PEG ratio in the past and has certainly pointed me to some blockbuster deals.