Why Kroger Stock Dropped Today

Kroger (NYSE: KR) stock slid 4.9% through 12:10 p.m. ET Thursday after beating on earnings, but missing on sales this morning.

Analysts forecast Kroger would earn an adjusted $1.03 per share on sales of $34.2 billion in its Q3 earnings report. Kroger actually earned $1.05 per share, but its sales fell short at $33.9 billion.

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Kroger Q3 earnings

This news gets worse. Same-store sales increased 2.6% year over year, but total revenue still sank 0.9%. Kroger took $3 in charges to earnings for asset impairment of its automated fulfillment network, reducing GAAP earnings (as calculated according to generally accepted accounting principles) to negative $2.02 per share.

CEO Ron Sargent insisted Kroger had a "strong" Q3. (And to be fair, if not for the accounting adjustment, earnings actually would have grown 7%, faster than sales, thanks in part to a 40 basis point improvement in gross margins).

Is Kroger stock a buy?

In other positive news, Kroger mostly stuck with previous guidance for the whole year, predicting earnings per share from $4.75 to $4.80, with $2.8 billion to $3 billion in free cash flow. This is all despite same-store sales slowing to about 2.9%, below previous predictions.

On a share price of $62 and change, this values Kroger stock at about 13 times current year earnings, and an only slightly more expensive 14 times current year free cash flow.

On a stock paying a decent 2.1% dividend yield, Kroger shouldn't have to grow much faster than 10% annually over the next five years to justify the stock price. Really, the best reason to sell Kroger stock today is not because of the earnings it just reported -- but because in future years, analysts forecast earnings will only grow at 6%.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.