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.
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.
