Contrarian Move: Why Smart Money Is Betting on Battered Grocery Outlet Stock

just_another_wallet · 2025-12-31T15:17:07+00:00

Rivermont Capital Management's substantial investment in Grocery Outlet, despite its recent downturn, highlights the potential for recovery in discount grocery retail. The company's growth metrics and unique value proposition suggest that current market pessimism may be excessive.

just_another_wallet

2025-12-31 15:17:07

Abstract generation in progress

The Setup That Caught Investors’ Attention

Grocery Outlet (NASDAQ:GO) has taken a beating—down nearly 40% over the past 12 months while the broader market rallied 15%. Yet New York-based Rivermont Capital Management just made a bold contrarian call, adding 1.1 million shares to its portfolio during Q3, pumping approximately $18.51 million into the position. As of September 30, their total stake reached $21.67 million across 1.35 million shares.

The move signals something important: not all cheap stocks are value traps.

Why This Matters in Today’s Market

Grocery Outlet operates 563 independently-run discount grocery locations across 16 states, selling name-brand products at steep discounts—a model that mirrors strategies seen in the European grocery sector, where value retailers have consistently outperformed traditional supermarkets.

Current metrics:

Share price (as of recent trading): $10.27
Market cap: $1.01 billion
TTM Revenue: $4.57 billion
TTM Net Income: ($4.44 million)

The company’s third-quarter results showed net sales climbing 5.4% to $1.17 billion, driven by new store openings and customer foot traffic. Yes, margins compressed due to promotional activity and restructuring costs—but the underlying business continues expanding.

A Fund’s Top Holdings Show the Pattern

Rivermont’s portfolio concentrates on established, cash-heavy businesses rather than speculative growth plays:

STX: $35.46M (9.37% allocation)
FERG: $32.29M (8.5% allocation)
WTW: $29.40M (7.77% allocation)
CLH: $28.48M (7.5% allocation)
WDC: $27.08M (7.15% allocation)

The Grocery Outlet purchase fits this thesis perfectly—a durable discount operator trading at a steep markdown, with management eyeing same-store sales improvement through store refresh initiatives in 2026.

What This Tells Us

When a fund with conviction moves $18.51 million into a stock that’s been decimated, it’s betting on recovery, not momentum. Grocery Outlet’s differentiated discount model—particularly relevant as European grocery retailers continue proving that value-focused operations win during market uncertainty—suggests the market may be pricing in more pessimism than the fundamentals warrant.

The real question isn’t whether the stock will bounce back. It’s whether you believe independent discount operators can recover when given strategic runway.

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