Q: I was just reviewing the Balanced Equity Model Portfolio for investment ideas. You show Loblaws with a YTD return of 15.18% as of Nov 30. I believe it is closer to 32%. Metro has a return of about 14%. Why has Metro lagged Loblaws so much for so many years ?
5i Research Answer:
The difference in the YTD returns of L within the Balanced Portfolio is largely because of a timing issue, as we first added L into the Balanced Portfolio in September 2025. As a result, the returns of L within the Balanced Portfolio are calculated since then (around 15%) rather than since the beginning of the year (around 30%).
On the other hand, it is true that MRU’s return has lagged L on various time frames including year-to-date, 3-year, 5-year, and 10-year. It is largely because of a few reasons:
- Margin expansion: L experienced meaningful EBIT margin expansion compared to MRU due to more efficient operations. Ten years ago, the EBIT margins of both L and MRU were 4.1% and 5.7%, respectively. Today, the margins for L and MRU are around 7.3% and 6.6%, respectively. Basically, L almost doubled its EBIT margin over ten years.
- Earnings growth: L grew EPS at around 19% per year in the last five years, while MRU grew its EPS by around 8% per year in the same period.
- Multiple expansion: L also experienced meaningful multiple expansion, from 17.2x ten years ago to around 27x today. By comparison, MRU’s forward P/E ten years ago was also around 17.2x, but its current P/E has only expanded slightly to 19.2x.
Overall, L has gradually become a much more efficient operator in the industry, while MRU has remained largely flat. The market recognizes this improvement, resulting in meaningful multiple expansion for L.