Is It Too Late to Buy Grocery Outlet Holding (GO) Stock?

Alex Smith
·4 min read

Argosy Investors recently released its Q1 2021 Investor Letter, a copy of which you can read here. First-quarter 2021 performance was 8.2% in select accounts. The S&P 500 by comparison returned 7.0%. You should check out Argosy Investors' top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.

In the Q4 2020 Investor Letter, the fund highlighted a few stocks and Grocery Outlet Holding Corp. (NASDAQ:GO) is one of them. Grocery Outlet Holding Corp. (NASDAQ:GO) is a supermarket company. In the last three months, Grocery Outlet Holding Corp. (NASDAQ:GO) stock gained 1.7% and on April 14th it had a closing price of $38.61. Here is what the fund said:

"When you think of high-growth businesses, groceries is not the top of the list. With that said, I believe Grocery Outlet Holdings (GO) has a good business model and a significant opportunity for expansion. Grocery Outlet operates a deep-discount grocery model where about half of their selection is priced at 40-70% off traditional grocers. They offer other goods that don’t typically sell at discounts to provide a full selection. The other key to their model is that it is somewhat of a franchise model. Grocery Outlet selects individuals with grocery retail experience to run the stores like owners (operators), and they pay them a commission based on the store’s profitability. This offers a significantly higher earnings opportunity for the operator than as a store manager at another chain, and this arrangement significantly aligns the operators with Grocery Outlet, which I love. The last piece of the puzzle is that Grocery Outlet currently only has 380 stores on the West Coast and in parts of Pennsylvania. It might come as no surprise that customers love low prices, and with an average square footage of 14,000, I believe that continued growth is reasonable to expect.

Grocery Outlet’s goal has been to grow store count by 10% annually, and over the last 15 years they have growth same-store sales (SSS) by over 5% annually. SSS may slow over time as the store base matures, but GO could see sales growth in the 12-15% range for several years. Because of Grocery Outlet’s model, I think they will be able to effectively leverage their expenses, so there is a decent argument to be made that profits can grow in the 15-17% range for another 10 years or more."

Copyright: stocking / 123RF Stock Photo

In Q3 2020, the number of bullish hedge fund positions on Grocery Outlet Holding Corp. (NASDAQ:GO) stock decreased by about 5% from the previous quarter (see the chart here), so a number of other hedge fund managers don't believe in GO's growth potential. Our calculations showed that Grocery Outlet Holding Corp. (NASDAQ:GO) isn't ranked among the 30 most popular stocks among hedge funds.

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Disclosure: None. This article is originally published at Insider Monkey.