Should You Imitate The Insider Purchase At Safeway Inc. (SWY)?

Other grocery stores include The Kroger Co. (NYSE:KR), SUPERVALU INC. (NYSE:SVU), Whole Foods Market, Inc. (NASDAQ:WFM), and The Fresh Market Inc (NASDAQ:TFM). The Kroger Co. (NYSE:KR) has been growing modestly, going by recent reports, and it too is priced close to value territory with both the trailing and forward earnings multiples coming in at 13. It is valued at a considerable premium to Safeway Inc. (NYSE:SWY) in terms of EBITDA, however, with a trailing multiple of more than 6x to Safeway’s 5.2x valuation on that basis. SUPERVALU INC. (NYSE:SVU) is up strongly in the market after selling off a number of its store brands to private equity. The company is expected by the sell-side to earn a profit next year as a result, with a forward P/E of 13, but many market players thinks that bulls have overreacted to the company’s good news and so over 20% of the float is held short here as well.

Whole Foods Market, Inc. (NASDAQ:WFM) and The Fresh Market Inc (NASDAQ:TFM) carry more premium valuations in deference to their high growth and their popularity among more upscale customers. Their trailing earnings multiples, in fact, are in the 39-40 range which seems quite high. Whole Foods Market, Inc. (NASDAQ:WFM) reported 14% revenue growth in its most recent quarterly report compared to the same period in the previous fiscal year, and earnings rose by 20%. Those are good numbers, but in the long term we would expect growth rates to decline as the company expands and so the stock does not look like a buy right now. The Fresh Market Inc (NASDAQ:TFM) has also been achieving double-digit growth rates on both top and bottom lines, though in that case the company has a significant bearish community: shorts are responsible for 14% of the float. Indeed, even the forward P/E of 28 seems quite speculative given Fresh Market’s recent performance.

From a value perspective investors seem wise to concentrate on The Kroger Co. (NYSE:KR) or Safeway Inc. (NYSE:SWY) as potential picks (and possibly SUPERVALU INC. (NYSE:SVU) if that company starts to look on track to hit EPS targets for next year). These companies would have to continue growing their earnings in order to be value plays, but recent financials suggest that is at least possible and in both earnings and EBITDA terms their valuations do not seem as high as those of their trendier peers.

Disclosure: I own no shares of any stocks mentioned in this article.