Warren Buffett's $555.7 billion conglomerate, Berkshire Hathaway Inc., announced it has acquired a 2.3 percent share in Cincinnati-based Kroger, government documents showed.
The tycoon invested in 19 million shares of the grocery chain, dedicating 0.22 percent of its equity portfolio to the stake. Kroger's stocks traded for an average price of $26.57 a share in the latest quarter.
Kroger has a $22.51 billion market cap, with shares trading around $28.23 late Friday on a price-earnings ratio of 14.39, a price-book the ratio of 2.57 and a price-sales ratio of 0.19.
Word of the legendary billionaire's $500 million acquisition in the country's second-biggest grocer sent the company's stocks skyrocketing during extended sessions, late Friday. The New York Stock Exchange is closed for the celebration of Presidents' Day, but Kroger stocks shot up almost 7 percent to $29.88 in after-hours trading.
Rating agency Guru Focus gave Kroger's financial strength a 5 out of 10 grade on the back of dismal interest coverage and a low cash-debt the ratio of 0.03. The Altman Z-Score of 3.78, however, shows the firm is in good standing in terms of financial status.
With a net value of over $80 billion, Warren Buffett is ranked as the third richest person in the world, next to Amazon chief executive officer Jeff Bezos and Microsoft founder Bill Gates, according to Forbes. Buffett's traditional buy-and-hold investing strategy is credited for popularizing value-investing.
Unlike activist hedge funds that have targeted Ohio peers like Macy's and Procter & Gamble, Buffett's investing style is likely to be interpreted as a vote of confidence in Kroger management's planning and stock projection.
The company's revenue capability hit an 8 out of 10 scores, despite having a sliding operating margin. Kroger is also backed by returns that outperform at least 50 percent of its rivals, which means business conditions are stable for the company.
Kroger's business predictability rank of 5 out of 5 stars is on watch as a result of a slowdown in profit per share growth in the last four quarters. According to Guru Focus, companies with this rank usually see their stocks rise an average of 12 percent per annum over a 10-year timeframe.
Meanwhile, Berkshire Hathaway's 19 million shares are enough to make it one of Kroger's 10 biggest investors to date.
Kroger's stock has taken a hit in recent years after Amazon penetrated the grocery business when the retail giant bought Whole Foods in 2017. Since then, the Downtown-based retail company has jacked up its home delivery service to attract customers demanding more convenience.
