The Metcash share price is up 40% in the past month. Could it go higher?

Credit: Steve Jurvetson

Metcash Limited (ASX: MTS) has seen its share price climb more than 40% in the last month, despite losing more than 5% today.

That includes 16% earlier this week, after the grocery wholesaler to IGA stores around Australia reported net profit rising by 20% to $122 million, net debt down 35% and $100 million in annual cost savings – among other news.

Metcash share price

Source: Yahoo Finance

The problem is that the share price could be about to reverse course again and return to a share price of around $1.30, thanks to increased competition and lower supermarket prices.

Both Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) are slashing prices in an effort to woo the budget-conscious shoppers who have turned to Aldi and Costco. Woolworths faces an even greater challenge as consumers no longer see it as a competitor to Coles on price.

Foolish takeaway

At these prices, I wouldn’t be buying in. It may take a number of years for the dust to settle in the supermarket industry, and Metcash is sandwiched between its larger rivals Coles and Woolies above it and Aldi and Costco below in terms of market share and relevance. I wouldn’t gamble on Metcash despite the apparent cheap price and other bargain hunters jumping in. They could well be wrong.

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Motley Fool writer/analyst Mike King owns shares in Wesfarmers and Woolworths. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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