Is the Woolworths Group Ltd (ASX: WOW) share price a buy today?
For every seller in a trade there's a buyer, so there's someone out there who always thinks a share is a buy. But, the Woolworths share price has gone up 12% since the start of March so investors are getting more excited about the prospects of Woolworths.
Woolworths does seem to be showing signs of improvement. In the recent FY19 third quarter sales result the business showed a 4.1% increase in sales of the Australian Food division, 3.7% growth for Endeavour Drinks (which includes Dan Murphy's), 3.2% growth for New Zealand Food, 2.6% growth for Big W and 3.2% growth for Hotels. These were solid numbers across the board, but it was just one quarter.
If a business can't grow its top line then it's going to have long-term problems in my opinion. Woolworths operates in a very tough operating environment with both customers & suppliers pushing for better prices, plus all of the big competitors that Woolworths faces. Aldi, Costco, Amazon, Coles Group Limited (ASX: COL) are fierce competitors. Don't forget that Kaufland may soon open here too.
In my opinion the only way that Woolworths and Coles can be market-beaters from here is if they significantly increase their level of private sales. I can only think of two supermarket businesses in the western world that have managed to flourish despite all of the competition, being Walmart and Costco.
Walmart is a juggernaut of a retailer with excellent economies of scale whilst Costco gets you to pay to be a shopper, has a good level of private brand products, offers bulk products and also benefits from its size. I don't think Woolworths or Coles are as strong as Walmart or Costco.
Foolish takeaway
Woolworths is trading at 23x FY20's estimated earnings with a grossed-up dividend yield of 4.6%. Woolworths is a fine business, but I think its best days are behind it, particularly at today's price.
