J Sainsbury’s (LSE: SBRY) is down substantially from its 24 February one-year traded high of £3.61. I think this is largely due to a broader cooling in UK retail sentiment rather than anything company specific.

Indeed, despite retail data coming in softer across the March-April period, Sainsbury’s released another set of solid full-year results.

In practical investing terms, this disparity has widened the gap between the stock’s price and its real worth (‘fair value’). And because asset prices (including shares) tend to converge to this value over time, this could be a great opportunity for long-term investors.

So how big is this gap?

Where should the shares be trading?

Discounted cash flow (DCF) analysis enables investors to determine what a stock is truly worth by projecting future cash flows for the underlying business and discounting them back to today. When those forecasts become less certain, the discount rate on those projections increases.

Because analysts’ core cash flow projections may vary, so may their DCF price conclusions. My DCF modelling — including a 9% discount rate — shows Sainsbury’s shares are 53% undervalued at their current £3.10 price.

Therefore, their ‘fair value’ is £6.60 — more than double the present level.

So if share prices continue in their historical trend of trading to their fair value over time, and the DCF modelling proves accurate, this could be a tremendous buying opportunity today.

How does the business momentum look?

That said, to judge whether this valuation gap can realistically close, I need to look at the company’s underlying momentum.

A risk to Sainsbury’s is that UK consumer spending remains fragile, which would weigh on supermarket volumes. Another is an increase in the ongoing price‑competition cycle across the sector, which could pressure margins.

However, the giant supermarket business posted another set of solid full-year results on 23 April. Profit after tax rose 55.3% year on year to £393m, highlighting success in simplifying operations and sharpening its value proposition. Group revenue increased 2.7% to £33.6bn, underlining the resilience of its multi‑format retail model in a challenging consumer environment.

Meanwhile, retail sales rose 4.3% to £29.99bn, illustrating the continued strength of its core grocery offer and improving customer loyalty. Net cash generated from operating activities surged by £972m to £1.77bn, showing tight cost control and effective working‑capital management.

Together, these results point to a business with solid operational momentum supporting solid earnings growth. Indeed, analysts forecast Sainsbury’s profits will grow by an average 7.3% a year to end-2028 at minimum.

My investment view

Despite its solid results and bullish analysts’ projections, Sainsbury’s still trades at a steep discount to its fair value.

Moreover, the forecasts are also for its dividend yield to rise to 5% next year, and to stay there over the medium term. This compares to an average 3.1% for the FTSE 100 and adds a layer of regular income to any share price gains. Consequently, I think it is well worth investors’ consideration.

I will not buy it, as I already have another holding in the sector (Marks & Spencer). But other deeply undervalued, high-yield shares have caught my eye recently.

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Simon Watkins owns shares in Marks and Spencer.