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Why Colombian Stock Almacenes Exito Just Rocketed 32%

What happened

Shares of Colombian retailer Almacenes Exito SA (EXTO 32.27%) surged 32.5% through 11 a.m. ET on Monday after Reuters reported that its parent company, French supermarket chain Casino, is selling its stake to yet a third retail company — El Salvador’s Grupo Calleja.  

And to make this story even more complicated and less intelligible to investors, according to S&P Global Market Intelligence, Grupo Calleja has an entirely different corporate name — “Super Selectos El Salvador.”

So what

So what’s really going on?

Start with Casino. This French retailer boasts a tiny market capitalization of barely $130 million, but a massive debt load in excess of $12.7 billion, according to S&P Global data. So in an effort to lighten this debt load, Casino has decided to sell off its Almacenes Exito stake for $400 million, unloading its shares at about $0.90 per share.  

Now, you might ask yourself why investors think this is good news for Almacenes. After all, according to data from Yahoo! Finance, the “stock” costs $6.66 right now. Doesn’t that mean that a sales price of $0.90 per share is bad news?

Well, it would, except for one thing. Like many international stocks, you see, Almacenes trades in the U.S. in the form of American Depositary Receipts (ADRs) — each of which you can think of as a sort of “bundle” of shares registered back in their home country. In fact, according to data from JP Morgan‘s ADR.com, each Almacenes ADR that you buy or sell here in the U.S. actually represents eight domestic shares of the company back in Colombia.  

Now what

In other words, Casino is actually selling its Almacenes ADRs for something closer to $7.20 per share. And by extension, this means that someone (Grupo Calleja) thinks these shares are worth $7.20 per ADR — rather than the mere $5.02 per ADR they sold for as recently as Friday!

That’s really good news for anyone owning Almacenes Exito stock today. It means the company is now worth about $1.1 billion, which incidentally gives the stock a price-to-sales ratio of about 0.21 — on par with that of American supermarket chain Kroger (KR 0.94%).

Granted, Kroger earned $1.6 billion over the past year, while Almacenes earned all of $2.6 million. Granted, too, this means that Kroger stock costs only 19.5 times trailing earnings (i.e., it has a P/E of 19.5), while Almacenes stock has a P/E of more than 420. At these valuations, I personally would be much more inclined to buy Kroger stock than to buy stock in Almacenes (which just got a whole lot more expensive).

In fact, thanks to today’s big run-up, I think now might be a fine time to go ahead and sell Almacenes Exito stock.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.

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