Sainsbury’s (LON: SBRY) share price has been in a strong downward trend in 2022. The shares crashed to a low of 170p, which was the lowest level on record. It has plunged in the past two consecutive months, bringing the total year-to-date losses to almost 40%.
Retail sector struggling
Sainsbury’s is the second-biggest retailer in the UK. As a result, the shares performed well in 2021 as interest of British retailers rose. At the time, private equity companies competed to take Morrison’s private. There were rumours that Apollo Global Management was interested in Sainsbury’s.
There are two reasons for this crash. First, the British pound has been in a strong downward trend against the US dollar. In September, the currency managed to crash to the lowest level on record. This is an important thing for Sainsbury’s since the company imports most of its goods from Europe and Asian countries.
As such, the company is now paying more money for these goods. At the same time, soaring inflation has led to less consumer spending. In its most recent results, the company’s same-store sales dropped by 4%. Grocery sales dropped by 2.4% while total general merchandise fell by 11.2%.
On a positive side, the falling sterling has made it much cheaper in USD terms, meaning that it could now become more attractive to foreign PE firms.
Second, the UK economy is facing significant challenges as inflation rises. For example, the cost of doing business has risen due to energy and wages. As such, the company will likely report weak profit numbers on November 3rd. For example, one of the top retail news this week was that Tesco’s profitability crashed in the first half of the fiscal year.
Sainsbury’s share price forecast
The daily chart shows that the SBRY share price has been in a freefall in 2022. This decline saw the stock crash below the important support level at 200p, which was the lowest level on June 30th. It has fallen below all moving averages while the Relative Strength Index (RSI) has moved to the oversold level.
Therefore, the stock will likely continue falling as sellers target the next key psychological level at 150p. In the long term, the stock will likely bounce back.
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