UNFI could be a premium-selling candidate
On Oct. 14, when Kroger (KR) and Albertson's (ACI) announced their massive merger, sector peer United Natural Foods (NASDAQ:UNFI) shed 2.2%. While that mega-merger is facing legal and antitrust hurdles, UNFI has strung together three straight weekly wins.
The food retailer --with over 30,000 locations throughout the U.S. and Canada -- is still down 15.5% in 2022, but now has tacked on 20% this quarter alone. Amid its torrid rally from a Sept. 29 multi-year bottom of $32.90, the shares are facing off with their 200-day moving average. Despite the technical troubles, United Natural Foods offers a cheap valuation at a forward price-earnings ratio of 8.2 and a price-sales ratio of 0.09.
Although the business is expected to generate a relatively slow growth rate, its expected consistency makes the stock’s valuation appealing. However, United Natural Foods’ biggest fundamental issue is its balance sheet. It currently holds just $47 million in cash and $3.38 billion in total debt, outnumbering UNFI’s market cap of $2.4 billion by nearly $1 billion. Nonetheless, United Natural Foods continues to be a relatively safe investment from a risk-reward perspective due to its low price.
UNFI options look well-priced at the moment, too. The stock's Schaeffer's Volatility Index (SVI) of 45% stands higher than 10% of all other readings in its annual range, implying that options players are pricing in low volatility expectations. It's also worth pointing out that the equity ranks low on the Schaeffer's Volatility Scorecard (SVS), with a score of just 16 out of 100. In other words, the security has consistently realized lower volatility than its options have priced in, making the stock a potential premium-selling candidate.