Is the Woolworths Limited (ASX: WOW) share price a bargain at $26?
To understand and answer that question we need to know the difference between price and value.
Price Versus Value
Warren Buffett famously said, "price is what you pay, value is what you get." In other words, the price is what we are asked to pay, the value is what we are willing to pay.
Unlike share prices, which change by the second, a person's assessment of value is fixed at a point in time and is much less volatile.
For example, if I value Woolworths shares at $25 today, I'm not going to change it in the next hour, day, week or even month. The only time when I might change the valuation of a company is when new information comes to hand. Not just new information but information that changes my earlier thoughts.
And I'm not talking about online click bait or sensationalism in the mainstream press. But actual hard evidence that the company is doing something different, or when its financial results are released.
It's the difference between price and value that creates opportunities for savvy investors.
What are Woolworths shares worth?
I run my own valuations on shares. As I showed here, it can be done on Woolies shares in just a few minutes. You would need to take into account any growth from its supermarkets, liquor sales, cost-outs and competition.
If you would rather watch cute cat videos on Facebook, the footy or have a social life, many people choose to follow analysts or their favourite investor.
Currently, Woolworths shares are 'worth' $26.75, according to the average of 16 analysts surveyed by The Wall Street Journal. At their current price of $26.79, the analysts' valuations would appear to be spot-on.
Therefore, if you follow the analysts (which I do not), you would not be buying Woolies shares at today's prices. For a share to be a 'bargain', it needs to be at least 30% undervalued.
Foolish Takeaway
At today's prices of just over $26, I do not believe Woolworths shares are a bargain. Instead, they are probably around fair value. That means if you seek to buy things for less than they are worth you should probably go looking for bargains elsewhere.
