While Woolworths (ASX: WOW) share price is not quite at the 52-week high of $36.84 it reached back in April, it is certainly a long way above the mid-20s level where it has been much of the past five years.
As one of the most widely followed stocks, Woolworths' valuation receives a lot of attention. As Woolies share price approaches, or in some cases exceeds, many analysts' price targets, investors might be pondering who continues to bid up the price for the shares. It is a very reasonable question to pose and the answer is likely to be buyers who are not focussed on value. While Foolishly we suggest investors purchase companies when the price offered is less than the value they receive, many market participants choose a different tact.
This tact can involve a single focus on a maintainable dividend with no regard to overpaying for value or it could be the desire to not miss out on a rising market. Indeed as the chart below shows, Woolworths shares have moved pretty well in lock step with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). In comparison, grocery wholesaler Metcash (ASX: MTS) has significantly underperformed both the index and Woolworths and could be in undervalued territory.
Source: Google Finance
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
