The J Sainsbury (LSE:SBRY) share price is down 4.5% on Friday (11 October). However this isn’t due to something unsuitable with the underlying enterprise. 

The reason being that its largest investor has made a big sale at a reduction to the inventory’s earlier stage. So might this be a possibility for buyers trying to purchase the inventory?

Low cost promoting

Sainsbury’s largest shareholder is the Qatar Funding Authority (QIA). And the agency determined to eliminate 109m shares within the UK grocery store chain at a price of £2.80 every. 

That’s round 4% of the corporate’s excellent share depend. And the price implies a reduction of roughly 3% to Thursday’s closing price.

Information {that a} main shareholder is trying to promote typically doesn’t fill buyers with confidence about an organization. Consequently, the shares have been falling. 

It’s not apparent to me that there’s something unsuitable with the underlying enterprise, although. So this may be the second for anybody who has been ready for a possibility to purchase.

Surprisingly good

Sainsbury operates in an intensely aggressive trade – prospects are largely pushed by price and Aldi and Lidl are a big menace. Plus Tesco has a a lot bigger market share. And that’s not going to vary any time quickly.

Nonetheless, the enterprise has been performing effectively. Within the first six months of its monetary 12 months, retail gross sales grew nearly 8% with grocery gross sales up 10%. 

This means that Sainsbury is defending its place effectively in opposition to the price range retailers. And whereas earnings per share fell barely, the corporate maintained its dividend. 

Wanting forward, the agency expects to generate not less than £500m in free money circulation this 12 months. Primarily based on the present £6.5bn market cap, that means a 7.6% return – that appears fairly good to me.

Why is QIA promoting?

Given all this, the plain query is why the QIA share sale occurred. I don’t know what the reply is, however a few issues stand out to me. 

One is that the agency nonetheless has a big stake in Sainsbury. It owned round 15% of the full firm earlier than the sale, so disposing of round 3% nonetheless leaves it with a considerable funding.

One other is that the aim of the QIA is to diversify Qatar’s economic system. Consequently, the sale would possibly simply be to assist scale back portfolio threat by investing elsewhere. 

It’s not apparent to me that the sale – or the market’s response to it – is something that should trigger buyers to rethink their view on Sainsbury. However there’s an essential lesson right here.

Investing in shares

It’s essential that buyers have their very own concepts concerning the shares they select to purchase. And which means having a transparent view of why they’re optimistic concerning the underlying enterprise.

Whether or not it’s Warren Buffett or the QIA, copying another person is a foul thought. They may promote at any time for causes which can be solely their very own – they usually’re solely justified in doing so.

Sainsbury’s doesn’t soar out at me as a enterprise I need to personal. But when I have been somebody who had a extra optimistic view on the corporate, I’d see the falling share price as a possibility and would contemplate it.