Like its consumer staples peers, Kroger (NYSE:KR) is enjoying record growth these days thanks to pandemic-related changes in shopper behavior. That boost has helped the stock outperform the market by a wide margin in 2020. The supermarket chain is also beating rivals like Walmart (NYSE:WMT) and Costco on that measure of short-term returns.

But are shares still a good long-term bet, given that Kroger was losing market share before COVID-19 struck? Below, we'll look at the prospects for the retailer's continued outperformance in late 2020 and beyond.

A grocery store worker restocks produce.

Image source: Getty Images.

Market share questions

Kroger's rebound strategy had just started taking hold before COVID-19 scrambled demand trends in the industry. Comparable-store sales gains were running above 2% through February to mark a slight acceleration over the prior year's result. That spike was an encouraging improvement, but it still left Kroger trailing Walmart, its main competitor. The retailing titan had found success in pouring cash into its fresh produce section while improving its popular multichannel fulfillment platform.

While different reporting calendars make it hard to make direct comparisons between short-term growth rates, Kroger appears to be clawing back some of the market share it lost over the last two years. Comps were up 19% in the three months that ended in late May. Walmart's last quarterly report showed a 9% increase on that measure and Costco's growth was 9% in the month of May.

The foundation for more growth

The big question is whether Kroger and its peers can hold on to the new shoppers they have welcomed since the pandemic boosted demand for groceries and home maintenance supplies. The chain's popular in-store brands like Simple Truth are one good reason to believe it can. These corporate franchises jumped 21% last quarter thanks in part to surging demand for plant-based and organic food products.

On the other hand, Kroger is a bit behind its national peers when it comes to its multichannel selling platform. It's clear that Walmart's buy-online-pickup-at-store functionality is a big consumer draw. And Target has shown that shoppers are willing to pay up for ultra-fast fulfillment options. Kroger hasn't yet taken full advantage of these trends to sustainably boost margins and sales growth.

A good deal?

That factor helps explain why Kroger is still valued at such a discount compared to industry rivals. You can buy the stock for less than 0.25 times sales today, compared to 0.69 times for Walmart and nearly 1 times sales for both Target and Costco.

KR PS Ratio Chart

KR PS Ratio data by YCharts.

That widening gap makes sense only if you believe Kroger will revert to the market-lagging sales and profitability metrics the chain managed in 2018 and 2019. If instead you think the retailer has a good shot at growing its loyal shopper base into 2021, the stock could be a solid deal right now.

Sure, Kroger hasn't demonstrated that its past market share struggles are behind it. But it has welcomed millions of new customers since the pandemic began.

The retailer has used some of the spoils from that success to pay off debt, reinvest in the business, and accumulate an impressive cash reserve. All those assets should support the stock through a mix of strengthening earnings and increased direct cash returns to investors over the next few years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.