Cramer Says Whole Foods (WFM) is CHEAPER than SUPERVALU (SVU)
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The typical simple valuation on a stock is your P/E ratio: price-to-earnings. It shows where shares are trading relative to what the company is bringing in per share, and its a gauge to whether the stock is expensive our right in-line relative to peers.
But Cramer says that is not the case. He recently took a look at two supermarket chains, Whole Foods (NYSE: WFM) and SUPERVALU (NSE: SVU). From a P/E standpoint, SUPERVALU looks cheap, going for about 6.5 times earnings expectations compared with 26 times for Whole Foods. But P/E is only half the story, Cramer contends.
The other half? How fast those earnings are growing, or the PEG ratio. You take your P/E ratio, and then divide by the expected five-year growth rate, without converting to a proper decimal (i.e. - 11.0 percent is still 11.0 percent, not 0.11).
Cramer notes that anything over two is expensive, while something under one is cheap. So, taking this into consideration, Whole Foods carries a PEG of 1.44, compared with a "stratospheric" 3.48 for SUPERVALU.
This is possible because SUPERVALU is much larger than Whole Foods, meaning growth is limited moving forward. Cramer contends that Whole Foods can still triple its store count and still be a great play on healthy eating.
Whole Foods is 0.6 percent lower Tuesday, while SUPERVALU is over 1 percent lower.
But Cramer says that is not the case. He recently took a look at two supermarket chains, Whole Foods (NYSE: WFM) and SUPERVALU (NSE: SVU). From a P/E standpoint, SUPERVALU looks cheap, going for about 6.5 times earnings expectations compared with 26 times for Whole Foods. But P/E is only half the story, Cramer contends.
The other half? How fast those earnings are growing, or the PEG ratio. You take your P/E ratio, and then divide by the expected five-year growth rate, without converting to a proper decimal (i.e. - 11.0 percent is still 11.0 percent, not 0.11).
Cramer notes that anything over two is expensive, while something under one is cheap. So, taking this into consideration, Whole Foods carries a PEG of 1.44, compared with a "stratospheric" 3.48 for SUPERVALU.
This is possible because SUPERVALU is much larger than Whole Foods, meaning growth is limited moving forward. Cramer contends that Whole Foods can still triple its store count and still be a great play on healthy eating.
Whole Foods is 0.6 percent lower Tuesday, while SUPERVALU is over 1 percent lower.
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