Up 10% in the past year, can this FTSE 100 share continue rising?

In what’s an increasingly cut-throat market, FTSE 100 retailer Sainsbury’s (LSE:SBRY) has been making impressive progress and in the last year (to February) delivered its greatest market share gains for more than 10 years.

Sales rose 4.2%, or 3.2% on a like-for-like basis, reflecting what its chief executive says is “a winning combination of value, quality and service that customers love“. To celebrate, it announced plans to reward shareholders with £250m of special dividends and a share buyback programme of £200m.

Britain’s second-largest supermarket has plans to build on its recent progress, having acquired 14 new supermarket sites to expand its store estate. Market conditions are tough, but the grocer’s heavy investment in prices, products, and the pulling power of its Nectar loyalty programme continue to attract yet more punters.

Reflecting its recent successes, Sainsbury’s has seen its share price rise 10.1% over the last year. But can the Footsie grocer continue its robust momentum? I’m not so sure.

Competitive pressures

As I say, the business has performed robustly in an environment of bloody competition. The question is whether it can continue to do so as value chains Aldi and Lidl grow their estates, its rivals open swathes of new convenience stores, and fellow ‘Big Four’ operator Asda kicks off a bruising new price war.

Reflecting these pressures, Sainsbury’s has said it expects annual underlying operating profit to flatline at £1.1bn this financial year.

Like its rivals, Sainsbury’s can continue heavily discounting to defend its in-store footfall and online sales volumes. But this could come at a catastrophic expense to its already wafer-thin retail margins (this was 3.17% in fiscal 2025 on an underlying operating basis).

Other threats

The pressure on the retailer to cut prices is especially great as the cost-of-living crisis endures. And unfortunately, some economists suggest that consumer spending power may remain weak for the rest of the decade, if not longer.

According to think-tank Resolution Foundation, typical household incomes will rise just 1% between 2025 and 2030. And for the lowest earning households, income’s expected to drop by the same percentage over the five years.

This outlook’s especially worrying for Sainsbury’s, given its huge Argos general merchandise division which is more vulnerable to consumer conditions than food retail.

As if this wasn’t enough, food retailers also faces sales danger as weight loss jabs like Ozempic become increasingly popular, limiting demand for sweet treats and other guilty pleasures.

Some 4% of British households now use such medicines, according to Kantar Worldpanel.

But as its head of retail and consumer insight at the company says: “That’s almost twice as many as last year, so while it’s still pretty low, it’s definitely a trend that the industry should keep an eye on as these drugs have the potential to steer choices at the till“.

Buyer beware

I don’t believe that these risks are currently reflected in the valuation on Sainsbury’s shares. Following those recent price gains, they trade on a forward price-to-earnings (P/E) ratio of around 13 times, which is higher than the FTSE 100’s broader average.

As a result, I think investors should consider buying other momentum shares instead.

The post Up 10% in the past year, can this FTSE 100 share continue rising? appeared first on The Motley Fool UK.

Should you buy Sainsbury’s now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

More reading

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.