'Low margins': Why this ASX expert is selling Woolworths shares

This ASX expert has some harsh words for Woolworths.

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I'd wager that Woolworths Group Ltd (ASX: WOW) shareholders will be feeling pretty pleased with how their shares have held up in 2023 so far. Today, the Woolworths share price isn't doing too well, currently down by 0.05% at $36.78 a share.

That doesn't look great against the S&P/ASX 200 Index (ASX: XJO)'s gain of 0.35% currently.

However, zooming out and the picture gets a lot better for Woolworths investors. Over 2023 to date, Woolworths shares have put on a healthy 11.1%, rising from $33.09 in January to the pricing we see today.

But over the same period, the ASX 200 has lost 1.1% of its value. That makes Woolies shares a handy market beater over the year so far and by quite a large margin.

Woolworths is indisputably one of the most popular ASX blue chips on the market. Investors love its dominance of the Australian grocery and supermarket industry, its mature business model and its decades-long track record of paying fully-franked dividends.

However, we can't just take a company's success for granted. Even if a share is popular and has delivered for investors in the past, it doesn't automatically mean that it will continue to do so until the end of time.

So today, let's see why one ASX broker is telling investors that it's time to sell Woolworths shares.

ASX expert: Sell Woolworths shares

As reported in The Bull recently, Philippe Bui, of wealth management firm Medallion Financial Group, has named Woolworths shares as one of the firm's sell recommendations.

Bui stated that "we're concerned about lower operating margins and continuing competition pressures" when it comes to Woolworths going forward.

Bui points to "rising wages and possible margin compression in the discretionary retail part of the business in fiscal year 2024" as the reasons for the sell recommendation. As such, he told investors that:

Despite the company's defensive qualities, there's many more appealing businesses at lower valuations and higher dividend yields, in our view.

The point about lower valuations and higher dividend yields is an interesting one. It was only last week that we discussed how Woolworths shares trade at a substantial premium to arch-rival Coles Group Ltd (ASX: COL).

Right now, Woolworths shares are trading at a price-to-earnings (P/E) ratio of 27.78, while Coles is going for a far cheaper 19.46 earnings multiple.

That at least partially explains why Coles shares currently have a dividend yield of 4.34%, while Woolworths is offering just 2.83%.

So no doubt this expert opinion will be a tough one for Woolworths shareholders to consider today. Let's see what happens with this ASX 200 blue chip share going forward.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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