Is the Woolworths Group Ltd (ASX: WOW) share price a buy at the current price?
Woolworths has been a solid performer over the past year, the share price alone is up 14% plus the returns of capital. Over the past six months the share price is up around 10%.
Despite the extremely competitive environment that Woolworths is operating in, it managed to nudge earnings higher in the recent half-year result.
Sales from continuing operations were up 2.3%, continuing earnings before interest and tax (EBIT) were 1% higher and continuing net profit after tax (NPAT) grew 2.1%. There was a mix of results within that – Endeavour Drinks, which includes Dan Muphy's, saw EBIT drop 6.4% but the Australian Food division managed to grew EBIT by 4%.
The Woolworths supermarket business had to reduce its prices by an average of 2.5% excluding tobacco. Aldi, Costco, Amazon and Coles Group Limited (ASX: COL) all are trying to attract customers with lower prices, so this trend isn't going to change any time soon.
Woolworths, under the stewardship of CEO of Brad Banducci, has done a good job on focusing on delivering the right outcomes for both customers and shareholders. Closing and selling non-core divisions like Masters has been the right choice in hindsight, customers think of Woolworths as a good-service business again and dividends & buybacks are useful for shareholders.
Woolworths has started increasing its dividend again after a big cut in 2016. This is exactly what long-term shareholders like to see.
Foolish takeaway
Woolworths is trading at 22x FY20's estimated earnings. This isn't hugely expensive, but it's nearly trading at a multi-year high due to the announcement of the buy-back. I don't think now is the right time to buy shares. Mid-2016 may have been the best time to buy, but profit margins may continue to come under pressure from competition, so I'd rather sell than buy today.
