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Supermarket crash! Metcash Limited vs Woolworths Limited

Credit: Woolworths

Shares in Metcash Limited (ASX: MTS) finished Tuesday’s trading session around 4% higher.

The gains come after the grocery wholesaler notched up a double-digit fall on Monday when investors reacted negatively to the release of the group’s full-year results.

The key takeaways from the results were that revenues grew 1.3% thanks to growth in liquor, hardware and corporate segments, which offset revenue decline in the all-important food and grocery segment.

Meanwhile, underlying profit after tax increased by 2.7% thanks largely to significantly lower finance costs from a lower net debt balance.

Which supermarket is the better buy?

Although Metcash’s results didn’t excite investors they do appear to suggest that the business has been stabilised.

In fact, a review of the group’s share price performance over the past 12 months tells a very different story to the medium term.

Over the past five years, Metcash’s share price is down around 50%; Woolworths Limited (ASX: WOW) is down around 20%.

Meanwhile, over the past 12 months, Metcash’s shares have rallied 65%, while Woolworths’ shares sit 20% lower.

Metcash’s share price performance over the past year is a reminder that value investing can produce some spectacular gains when done right!

With this performance in mind, investors considering these two stocks should consider the further upside potential of Metcash given it remains on an undemanding valuation. Likewise, if Woolworths follows a similar path, there could be a great buying opportunity ahead.

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Motley Fool contributor Tim McArthur 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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