Sometimes cheap stocks deserve to be cheap.
Take Holland's Royal Ahold
First-quarter results did show some progress, but they also show vast room for improvement. Sales were up more than 8% as reported (in euro), and margins expanded at both the gross and operating levels. If not for the inclusion of a class action settlement, the company would have been free cash flow-positive.
But it's not all quite so good. Sales in the U.S. operations were up nicely on an as-reported basis, but looking at the results in dollars makes a difference. On that basis, Stop & Shop's revenue dropped a little, Giant's revenue dropped by a mid-single-digit percentage, and the foodservice unit's growth was less than 4%.
To their partial credit, no one in management at Ahold is pretending that this will be a fast or easy turnaround. While they're sticking to old standby ideas like accelerating store openings, renovating old stores, and boosting private-label merchandise, the fact remains that Stop & Shop (which accounts for almost one-third of total revenue) is something of a mess. It can be cleaned up, probably, but it's a mess nonetheless.
With all that in mind, it's tough for me to say that Ahold doesn't deserve to be cheap. After all, why go in for Ahold shares when you could just as easily buy Kroger
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Fool contributor Stephen Simpson but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).