TFSA Investors: Up 10% in Just Over a Month, Is Loblaw Stock a Buy?

TFSA investors may be considering Loblaw stock after its recent climb, but there could be a dip on the way after earnings.

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Loblaw Companies (TSX:L) shares just keep climbing higher and higher, now trading near 52-week highs. Shares are up 10% since mid-March, and about 5% since the beginning of the year.

Those investing in the stock may consider it a long-term option for their Tax-Free Savings Account (TFSA). Yet, it doesn’t look like you’re getting a deal at the outset. So what should TFSA investors consider if looking at Loblaw stock?

Earnings come out, stock slips

While shares of Loblaw stock are up by 10% in the last few weeks, earnings came out on May 3 and analysts were less than impressed. First quarter sales rose 6% year over year, held up by strong demand for groceries, essential goods, and pharmaceuticals.

It’s these essential items relied upon during this period of inflation that have led the company into a strong position. Adjusted profit climbed by just 10% as grocery prices rose, but costs gave the retailer little time to catch up.

Net income fell to $418 million compared to $437 million the year before. However, revenue still rose to $13 billion from $12.3 billion in 2022. Loblaw stock now expects single-digit growth in the next year. So while sales remain strong, its these costs that are going to continue biting back.

Get out, or get in?

Shares of Loblaw stock dipped by five percent before recovering slightly. Those shares still trade well within the triple-digit range as of writing, and are likely to remain there. Even still, investors may want to take a wait-and-see approach for most of 2023.

There has been a lot of shuffling going around at Loblaw stock. The company booted out chief executive officer (CEO) Galen Weston, replacing him with European retail executive Per Bank, set to take on the role in 2024. And until we can really understand his new views on the company, I’m not sure it’s the best time to get in.

A shift was needed for a while, with the company receiving heat as prices went up at the stores, and Weston received a significant pay raise. It looks like with him out, shareholders may be back on board.

But does that mean TFSA investors should be on board, too?

Bottom line

Let’s look at the fundamentals here. The next year is going to be difficult, it’s true. Shares of Loblaw stock could potentially drop further, providing more of a deal than you’re going to get right now. Plus, it trades out of value territory at 21.7 times earnings as of writing.

That being said, Loblaw stock also just increased its dividend by 10%. So that’s certainly something to consider; however, again I would hold out. You could wait and see if the yield rises further before getting in, as right now that yield sits at just 1.26% as of writing.

I use wait a lot here, rather than not recommending the stock at all. Loblaw stock continues to have a diverse set of assets under its umbrella. Drugs, beauty, low-cost retail, and gas partnerships all make it a strong choice. Never mind its President’s Choice branch, with PC Optimum and finance all providing solid buy reasons as well.

So hold off on Loblaw stock for now, but certainly not forever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Loblaw Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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