Albertsons has been treading water for the past six months, recording a small loss of 1.4% while holding steady at $17.10.

Is now the time to buy Albertsons, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Albertsons Not Exciting?

We're cautious about Albertsons. Here are three reasons you should be careful with ACI and a stock we'd rather own.

1. Lack of New Stores, a Headwind for Revenue

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Albertsons listed 2,257 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Albertsons has bad unit economics for a retailer, signaling it operates in a competitive market and lacks pricing power because its inventory is sold in many places. As you can see below, it averaged a 27.5% gross margin over the last two years. Said differently, Albertsons had to pay a chunky $72.51 to its suppliers for every $100 in revenue.

3. Weak Operating Margin Could Cause Trouble

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Albertsons’s operating margin has generally stayed the same over the last 12 months, averaging 2% over the last two years. This profitability was lousy for a consumer retail business and caused by its suboptimal cost structureand low gross margin.

Final Judgment

Albertsons isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 8× forward P/E (or $17.10 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

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