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Why Albertsons Stock Rallied 16% This Week

By James Brumley – Sep 3, 2021 at 12:30PM

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Investors are buying this stock mostly because it's going higher, which inspires more buying, which sends it higher, which drives more buying...

What happened

Shares of grocery store chain Albertsons (ACI 1.11%) are on pace to end this week with a 16.5% gain from last Friday's close, driven higher by multiple factors that have had time to simmer.

So what

Don't bother looking for a specific headline that spurred this week's gains, and Thursday's 9.5% advance in particular. You won't find one. Rather, to see why this consumer staples name has done so well of late, take a step back and look at the entire month's news including news not directly about Albertsons. Namely, this week's big rally caps off more than a 50% gain for the past month, spurred mostly by soaring food inflation. While challenging for consumers, higher retail prices typically improve overall profits for grocery stores.

Woman shopping in a grocery store aisle.

Image source: Getty Images.

The month-long rally was reaccelerated in mid-August, however, by news that the company has hired former Best Buy executive Sharon McCollam as its new chief financial officer. Although her purview is the company's finances, her hiring loosely suggests Albertsons is ramping up its efforts on the digitalization and modernization fronts -- an idea underscored less than a week later, when the company unveiled a new Deals & Delivery app that includes a subscription-based offering.

Now what

The enthusiasm is understandable. But, it's arguable that much of this week's advance just reflects the fear of missing out on gains of an already-rising stock. The end result is a stock valued at 15 times next fiscal year's projected per-share profits. That's frothy by grocery store standards, and Albertsons has yet to prove that any of its digitalization initiatives and recent hires will actually lead to meaningful growth it wasn't capable of producing anyway.

In other words, the bulk of this week's and this past month's gains is rooted more in speculative hope than probable results.

To this end, interested investors may want to hold off on any new purchases, and existing owners may want to consider locking in at least some profits while they're in hand. The market's apt to identify and then correct its unmerited enthusiasm sooner than later.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Albertsons Companies, Inc. Stock Quote
Albertsons Companies, Inc.
ACI
$20.98 (1.11%) $0.23
Best Buy Stock Quote
Best Buy
BBY
$86.60 (0.15%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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