Over the past six months, shares of Woolworths Limited (ASX: WOW) have handily beaten the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO). Take a look at the Woolworths (WOW) share price chart below.
Woolworths Share Price
One takeaway from this chart may be that the market is finally warming to Woolworths shares again. However, it takes more than speculation on a share price movement to create a sustainable market-beating investment record, in my opinion.
3 reasons Woolworths Limited (WOW) could be a buy
- Better value? Right now may be a good time to buy Woolies simply because the share price is down and out. Indeed, it may be in store for re-rating from analysts if it can continue to push back against Coles, owned by Wesfarmers Ltd (ASX: WES) and Aldi.
- Dividends. Woolworths slashed its dividend almost as quick as it cut Masters Home Improvement away from its business. Nonetheless, both moves appear appropriate for the longevity of the business. And despite the cut, it is still forecast to yield a handy dividend of 3.5% fully franked in the year ahead.
- A cleaner business model. I think Masters was a great idea — Australia needs another dominant home improvement business to rival Bunnings. But the company proved it did not have the experience in the DIY home improvement market. Now that Masters is gone, Woolworths appears to be a leaner and cleaner business.
Foolish Takeaway
At today's prices Woolworths may prove to be decent value but it is far from a risk free investment, in my opinion. Indeed, with Aldi and Coles seemingly gaining traction and Amazon expected to launch in Australia, there are many issues to consider.
So, I'm not a buyer of Woolies shares at today's prices. Instead, I'm holding off for a while longer and considering the alternatives.
