​​Sainsbury's looks towards further growth as inflation begins to ease

​​​Sainsbury's looks towards further growth as inflation begins to ease

​UK supermarket chain Sainsbury's has reported a nearly 10% increase in sales, indicating that the rise in food prices is slowing down. The company's CEO, Simon Roberts, stated that they are committed to passing on savings to their customers, and prices on their top 100 products have actually decreased since March. This aligns with data from Kantar, which shows a deceleration in food price inflation for the third consecutive month.

​Sainsbury's sales growth is primarily driven by increased volume rather than price hikes. Grocery sales have risen by 11%, exceeding analysts' expectations, while general merchandise sales have grown by 4%. However, Roberts cautioned that although food prices are decreasing, they will not return to pre-pandemic levels due to elevated production costs, including a 10% increase in labour costs compared to last year.

​The largest declines in food prices are seen in fresh food categories, where prices had previously risen the most. Inflation remains more persistent in other product categories. Roberts also dismissed claims that supermarkets are profiting from high food prices, stating that profit margins are currently below 3%, the lowest they have been in years.

​How to trade the Sainsbury’s share price?

​At 30 times earnings, Sainsbury's shares are certainly not cheap, but given the 20% rise in the shares this valuation does not seem excessively high. Expectations of further sales growth as inflation eases could help support the shares, which have comfortably outpaced the FTSE 100 and rival Tesco so far this year.

​Refinitiv data shows a consensus analyst rating of ‘hold’ for Sainsbury’s – 2 buy, 5 hold and 3 sell - with the median of estimates suggesting a long-term price target of 270.00 pence for the share, where the share is trading at the moment (as of 4 July 2023).

IG sentiment data shows that 72% of clients with open positions on the Sainsbury’s share (as of 4 July 2023) expect the price to rise over the near term, while 38% of clients expect the price to fall with trading activity over this week and month showing 54% of sells.

​Technical outlook

​The Sainsbury’s share price, which took a slight hit on Tuesday morning following its Q1 trading statement, is still up over 20% year-to-date. This compares favourably with Tesco’s share performance which is up less than 10% but is far below Marks & Spencer’s near 53% year-to-date gains.

​The fact that the Sainsbury’s share price managed to stabilise at 254.80 pence in June, not far above its 245.2p March low, bodes well for the bulls as it shows that the medium-term uptrend since October remains intact.

​Sainsbury’s Weekly Candlestick Chart

​Therefore, provided the 254.8p to 245.2p support area underpins, further upside should be in store once the May-to-July downtrend line and current July high at 274.6p to 275.1p have been exceeded.

​Once this has happened the May-to-July decline of around 11% is expected to have run its course with the June high at 282.9p being back in sight. Once overcome the way is clear for not only the May peak at 291p to be reached but also the psychological 300p mark.

​Sainsbury’s Daily Candlestick Chart