Should you sell Metcash Limited at this share price?

The Metcash Limited (ASX:MTS) share price has recovered strongly, should you sell?

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The Metcash Limited (ASX: MTS) share price has grown by 125% since 18 September 2015, so is now the time to sell?

Metcash is a leading wholesale distributor and marketing company known for its food, drink and hardware. It has a market capitalisation of $2.24 billion after declining for a few years.

Here are my reasons why it may or may not be the best time to sell Metcash shares:

The hold case

Metcash has a large food & drink operation supplying IGA supermarkets around Australia. Metcash managed to grow sales in the overall group by 0.3% in the half-year to 31 December 2016. This is a good sign of recovery and shows that its efforts are working. If Metcash keeps growing overall sales, this could boost the share price further.

The hardware segment of Metcash's business is something to hold the shares for. The Independent Hardware Group contains Mitre 10 and Home Timber & Hardware. These are both growing businesses thanks to the housing boom in Australia and could boost Metcash profit in the years to come.

The sell case

The share price has recovered so strongly since its 2015 low that it may have gotten ahead of itself. Shorters seem to think so, as it was one of the 10 most shorted stocks on the ASX.

Aldi, Woolworths Limited (ASX: WOW) and Wesfarmers Ltd's (ASX: WES) Coles are all working on reducing prices. This benefits consumers, but it isn't good for profit margins, which will hurt Metcash too. Margins are already thin so this could be damaging in the long-term.

The Australian property market has been a great boost for Metcash's hardware business, but there are signs that the construction and renovation industry will be slowing down in the next couple of years. This would cause a slowdown in sales for Metcash's hardware business.

Foolish takeaway

Ultimately, I don't think the share price has much further to run considering the above issues. The share market bounce has helped, but in the medium to long term I don't think the share price can grow much from the current price.

Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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