With the intense competitive pressures washing over the British grocery sector only likely to worsen, in my opinion J Sainsbury(LSE: SBRY) is a suitable selection only for those with an extremely high risk-tolerance.
Latest data from industry researcher Kantar Worldpanel underlined the scale of the battle Sainsbury's, like the rest of the so-called Big Four operators, faces as the discounters continue to pull cash-strapped shoppers away from its doors.
Kantar revealed on Wednesday that sales at Sainsbury's edged just 0.6% higher during the 12 weeks to March 25, a figure that paled in comparison to revenue growth of 10.3% and 10.7% over at Lidl and Aldi respectively.
This meant that the FTSE 100 grocer's market share slipped 30 basis points year-on-year to 15.8%. Conversely, Aldi's share of the market swelled to 7.3% from 6.8% over the same period, while its Teutonic compatriot recorded a 5.3% share, up from 5% previously.
A pale shadow
The surging popularity of the European chains underlines the growing strain on shoppers' purses as inflation stays above real wage improvements. And these companies, unlike Sainsbury's and its peers, are expanding their store networks at a rate of knots to make the most of market conditions.
However, the fading power of the established operators' suite of megastores is not the only worry for the likes of Sainsbury's as signs are emerging that the online channel, at the moment the only ray of sunshine for the Footsie supermarkets, is beginning to run out of steam. Kantar revealed today that sales growth via grocers' websites slowed further during the most recent 12-week period to just 3.6%. And of course, this particular segment is also distracted with plenty of disruption of its own, with US internet giant Amazon in particular bulking up its operations.
Don't bank on a bounceback
Reflecting the struggle against a rising cost base too, City analysts are expecting Sainsbury's to record a 12% earnings slip for the year to March 2018, the fourth annual slide on the bounce, if realised.
As a consequence, the embattled firm is expected to drag dividends lower again to 9.9p per share from 10.2p a year earlier.
The number crunchers, however, are predicting that profits are about to finally kick higher again -- they are suggesting rises of 9% and 7% in fiscal 2019 and 2020 respectively. And this optimism spreads to predicted dividends over at Sainsbury's with growth to 10.8p for this year and 11.6p for the following period.
But given that the conveyor belt of worrying data shows no signs of slowing, I would pay these forecasts -- as well as subsequent dividend yields of 4.5% and 4.9% -- little attention.
In fact, while Sainsbury's might be cheap (it carries a forward P/E ratio of just 11.3 times), this is not cheap enough to avert a fresh share price plunge should, as I expect, trading news flow continue to disappoint. I for one would sell the FTSE 100 chain without delay.
It's easy to make a million by using a simple strategy such as tracking the FTSE 100 and letting your money work for you. Unfortunately, most investors 'over-trade' and, as a result, their returns suffer significantly...
To help you avoid this key mistake, the Motley Fool has put together this free report entitled "The Worst Mistakes Investors Make". These mistakes can cost you thousands over your investing career but the best part is, this report is free to download.
Click here to get your copy today.
Royston Wild has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.