Is the Woolworths Group Ltd (ASX: WOW) share price a buy today?
Woolworths has done well by its shareholders in 2019 with the share price up 8.3% for the year, plus the large $1.7 billion buy-back it has just completed. Just over a week ago the Woolworths share price was actually up by 19.5% but it has fallen by close to 10% over the past nine days.
Everyone seems to be more optimistic about the ASX large caps at the moment after the surprise Liberal election win. Franking credit refunds are here to stay and households might go out and start spending again if the headlines are to be believed.
Even before the election, Woolworths reported a solid March quarter of results. Group total continuing sales increased by 4.2% with the all-important Australian Food division growing sales by 4.1% on comparable sales growth of 3.6%.
I wouldn't expect that level of growth for every quarter in the near future but it shows that the supermarket giant can still generate a decent amount of growth of its top line sometimes. What was particularly impressive was a recovery for Big W with 2.6% sales growth and online sales growth of 35.1% across the group.
However, my main concern is the longer-term growth of Woolworths in the face of low-price competition like Costco, Aldi, Amazon and the near-term-arrival of Kaufland. Woolworths will have to do well for its earnings before interest and tax (EBIT) margin not to be slowly compressed over the coming years.
Food prices continue to fall in the supermarket, can the profit margin continue at the current level in this environment?
Foolish takeaway
Woolworths is trading at under 23x FY20's estimated earnings. This isn't a terrible price, but I think there are better priced options for growth and better value options for defensive earnings.
