Image source: The Motley Fool. 

Last week was a painful one for the supermarket industry. Hampered by food deflation, Sprouts Farmers Market (SFM 1.39%) and Supervalu (SVU) both lowered their guidance for the full year. On Friday, Kroger (KR -0.31%) followed suit in its second-quarter earnings report, which included its slowest comparable-sales growth in six years, at 1.7%. 

Shares of the nation's largest grocery chain slipped to a 52-week low in the aftermath of the report and are now down 26% after shares more than tripled from 2012 to 2015. This year's pullback could set up a good buying opportunity for the stock. Let's take a look at the evidence.

1. Valuation

Kroger's slide this year has made the stock cheap based on conventional measurements. At a P/E of less than 15, its valuation is lower than those of many of its peers, as the chart below indicates.

Company P/E Ratio
Kroger 14.7
Wal-Mart 15.3
Sprouts Farmers Market 20.4
Whole Foods Market 19.4
Costco Wholesale 28.5

Data source: YCharts.

Kroger's valuation is also discounted compared to the S&P 500's P/E at nearly 25, and its earnings valuation is also the lowest it's been since early 2014. A low price alone doesn't justify a buy; the stock needs to offer good value. However, even as comparable sales have slowed, they're still better than all of its rivals above, except for Costco, which reported adjusted comparable sales growth of 2% in the U.S. in its most recent quarter.

2. Flawless execution

This past quarter was the company's 51st consecutive period with positive comparable sales, a streak dating back to 2004 that's virtually unmatched in retail. Those increases encompass a time of transition in the industry as Wal-Mart added grocery departments to many of its stores and consumer demand shifted to organic and natural foods.

Through its Customer 1st strategy, Kroger has consistently implemented improvements like rolling out store brands such as Simple Truth, its organic line, offering craft beer on tap inside stores, and harnessing technology to improve its loyalty programs. 

The company now derives a quarter of its sales from private-label brands -- a boost for customer loyalty. And its investments in lower prices have also made it more popular with consumers. Lower prices have cost the company in gross margin as that figure has fallen from 26.3% in 2003 to 22.6% today, but sales have more than doubled during that period, justifying the narrower margins.

Combining those improvements with the company's recent acquisition strategy with its purchases of chains like Harris Teeter and Roundy's, Kroger has delivered steady improvements, promoting same-store sales and earnings growth. Its acquisitions of Harris Teeter and have also given the company key technologies that have boosted its e-commerce offerings and data analysis. 

3. The future looks solid

Temporary deflationary headwinds forced Kroger to lower its guidance for the current year as it sees comps for the second half at 0.5%-1.5% and expects full-year adjusted EPS of $2.10-$2.20, down from $2.19-$2.28. However, management said in the recent report that the company continued to gain share and increase traffic even as sales and earnings growth slowed. The company's size and scale may give it an advantage in the competitive promotional environment over smaller organic competitors.

Kroger also maintained its long-term goal of 8%-11% EPS growth and a growing dividend. Though the company won't make that goal this year, in 2014 and 2015, its EPS grew 23% and 17%, respectively, and management has lifted its dividend by 10% or more in each of the last four years. Its payout ratio, which is under 25%, also leaves room for continued hikes; and the company recently authorized $500 million for share repurchases, which it will likely apply since the stock is as beaten down as it is. The company has already spent more than $1.1 billion on share repurchases this year.

With little cash on the balance sheet and more than $10 billion in debt, another big-name acquisition probably isn't around the corner, but the prospect of expansion through another banner certainly exists down the road. While the next few quarters may not be stellar, Kroger's growth should improve as the deflationary environment subsides. For investors looking for a safe stock that should deliver steady growth, Kroger looks like a good choice.