The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (2)

A. & P. shares  were introduced to trading on the “Curb” market, now the American Stock Exchange, in 1929 and sold as high as 494.  

• By 1932 they had declined to 104, although the company’s earnings were nearly as large in that generally catastrophic year as previously. 
• In 1936 the range was between 111 and 131. 
• Then in the business recession and bear market of 1938 the shares fell to a new low of 36.

Sequel and Reflections

The following year, 1939, A. & P. shares advanced to 117 1⁄2, or three times the low price of 1938 and well above the average of 1937. 

• Such a turnabout in the behavior of common stocks is by no means uncommon, but in the case of A. & P. it was more striking than most. 
• In the years after 1949 the grocery chain’s shares rose with the general market 
• until in 1961 the split-up stock (10 for 1) reached a high of 70 1⁄2 which was equivalent to 705 for the 1938 shares.  

This price of 70 1⁄2 was remarkable for the fact it was 30 times the earnings of 1961. 

• Such a price/earnings ratio—which compares with 23 times for the DJIA in that year—must have implied expectations of a brilliant growth in earnings. 
• This optimism had no justification in the company’s earnings record in the preceding years, and it proved completely wrong. 
• Instead of advancing rapidly, the course of earnings in the ensuing period was generally downward.  
• The year after the 70 1⁄2 high the price fell by more than half to 34.   
• But this time the shares did not have the bargain quality that they showed at the low quotation in 1938. 
• After varying sorts of fluctuations the price fell to another low of 211/2 in 1970 and 18 in 1972—having reported the first quarterly deficit in its history.

Ref: Intelligent Investor by Benjamin Graham