Does the Woolworths Limited (ASX: WOW) share price leave a lot to be desired?
When weighing up whether or not to invest in a company, it is important to consider the strengths and the weaknesses of the investment.
2 reasons to buy and sell Woolworths shares
In the 'buy' corner we have:
- Dividends. Despite its recent woes, Woolworths is a leading supermarket with decent dividends on offer. According to analyst forecasts, the company's board is expected to declare dividends equivalent to 3.4% fully franked in the year ahead. That's an impressive yield in this low interest rate environment.
- Turnaround. Between 2014 and mid-2016, the Woolworths share price tanked, from over $37 to around $20.50. Profits came tumbling down and the company was forced to sell its Home Improvement business, including Masters. With new management and a plan to refresh its brand, some investors may believe Woolworths is a bargain.
Reasons to 'sell' Woolworths shares include:
- Competition. Although competition has always been evident in the supermarket space, Aldi is rapidly growing while Coles — owned by Wesfarmers Ltd (ASX: WES) — could be forced to discount products if Woolworths finds it legs again. While a price war may be in the best interests of consumers, it would not be good for shareholders.
- Better alternatives. Currently, there are over 2,000 companies listed on the ASX. Sure, many of them are probably rubbish. But investors need only find 10 to 30 shares to build a decent portfolio. After all, a 3.4% dividend is not that big, and many smaller companies will have more growth potential than Woolies.
Foolish Takeaway
At today's prices, Woolworths shares appear around fair value in my opinion. The company could turnaround its operations and return to sustainable long-term profit growth. But as Warren Buffett famously said, "turnarounds seldom turn".
