Can the Sainsbury's share price (LON:SBRY) replicate Tesco's success?

While Tesco might be celebrating the last stages of a successful turnaround, large cap peer Sainsbury's (LON:SBRY)still has much to prove. For the 28 weeks ended 22 September 2018, revenues increased 3% to £15.13bn but net income applicable to common stockholders decreased 14% to £134m and the group's dividend per share remained flat at 3p. 

It will be interesting to see whether this trend has improved in its next update but the jury is out - especially with Sainsbury's management distracted with trying to push through its controversial merger with Asda... Should CEO Mike 'We're in the money' Coupe et al manage to steady the ship, however, might Sainsbury's shares represent good value at these levels?

Legendary factor investor Jim O'Shaughnessy showed in his groundbreaking investment research tome, What Works on Wall St, that composite value factors based on a mix of metrics dramatically beat the market over a multi-decade period.

It was from this robust insight that Stockopedia’s Value Rank was born, its synergy coming from the following simple valuation ratios:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

How does Sainsbury's stack up?

The Value Rank: how does Sainsbury's stack up?

We can see by using Sainsbury’s StockReport that the group has a:

• Rolling price to book value of 0.66,
• Rolling price to earnings ratio of 11.4
• Trailing twelve-month price to free cash flow of 7.99
• Rolling dividend yield of 4.42%
• Trailing twelve-month price to sales ratio of 0.18

When we add all of these together, we find that Sainsbury's has a Value Rank of 90. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

Sainsbury’s Value Rank of 90 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

A smarter way to invest in value stocks is to find the best quality value stocks or value stocks whose share prices are turning around - history shows that you can do much better than a passive investor by combining factors, so it makes sense to consider J Sainsbury’s Value Rank alongside its Momentum and Quality Ranks. You can find this data in Sainsbury's StockReport.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with J Sainsbury that you can find out about here.