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small-cap

Exit From This Small-Cap Consumer Staples Stock - VLGEA

Feb 04, 2022 | Team Kalkine
Exit From This Small-Cap Consumer Staples Stock - VLGEA

Village Super Market, Inc.

Village Super Market, Inc. (NASDAQ: VLGEA) operates a ShopRite grocery chain, with locations in northern and southern New Jersey, Maryland, and northeastern Pennsylvania. Wakefern Food Corporation (Wakefern) owns the ShopRite brand and is the nation's largest retailer-owned food cooperative. It has one operating segment: the retail sale of food and non-food products.

Why Should Investors Exit?

  • Rise in Food Inflation in the US: The all-items Consumer Price Index (CPI), a measure of overall inflation, increased by 0.3% before seasonal adjustment from November 2021 to December 2021, up 7.0% from December 2020. From November 2021 to December 2021, the CPI for all food climbed by 0.5%, and food costs were 6.3% higher than in December 2020.
  • Bottomline Pressure: The company reported net margins of 1.5% in Q1FY22 (ended October 30, 2021) compared to the industry Median of 4.3%, indicating significant stress on the bottom line. The company's net margin fell to 1.5% in Q1FY22 vs. 1.8% in Q4FY21.
  • Decline in Cash Position: The company's cash and cash equivalents fell to USD 105.09 million as of October 30, 2021, from USD 116.31 million as of July 31, 2021, indicating future capital requirement problems.
  • Growing skepticism about the global financial market: The market is anxious that the Federal Reserve (Fed) would dramatically boost interest rates this year. Investors are looking forward to the upcoming FED policy meeting to learn more about how the Fed plans to combat inflation. Rising interest rates have alarmed investors since they increase borrowing costs, influencing global economic outlook and company earnings estimates.

Stock Recommendation:

VLGEA's stock price largely remained stable; however, it declined 5.67% in the past month. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 49.04. Considering the rise in US food inflation, bottom line stress, macro headwinds, and decline in the cash balance, we recommend a "Sell" rating on the stock at the closing price of USD 22.30, down 0.22% as of February 03, 2022.

Three-Year Technical Price Chart (as of February 03, 2022). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.