Woolworths Limited posts another strong year: Should you buy?

Is Woolworths Limited (ASX:WOW) worthy of any spare cash you may have floating around?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What: Retail giant Woolworths Limited (ASX: WOW) saw another strong year of performance from its eponymous supermarkets as normalised net profit climbed 6.1% to $2.45 billion on $60.8 billion of sales for the year. Total sales adjusted to normalise reporting periods were up 5.9% on the prior year.

The slightly higher normalised net profit demonstrates the company has been able to largely maintain or improve margins at its core grocery retailing businesses. This is critical to success and bodes well for future profit growth.

What now: While the supermarket business powers ahead the fly in the ointment may be the ailing Masters Home Improvement business, which posted an earnings before income tax loss of $176 million. This blamed on the Federal Budget's impact on consumer confidence and competition from Bunnings Warehouse, owned by competitor Wesfarmers Ltd (ASX: WES).

While some have questioned the rationale for entering the home improvement market, Woolworths says Masters remains in its development stage as it moves from a start-up, to a scalable, profitable business.

What of the outlook: Given its consistent growth in shareholder returns and leverage to food inflation Woolworths undeniably remains one of the best investments among the S&P/ASX 200 (INDEXASX:XJO) Index of leading companies.

The company has forecast net profit growth of 4%-7% in FY15, however it also expects trading conditions to remain challenging as cost of living pressures have to be managed.

Post-announcement shares are trading at $36.35 which is 18.5 times 2014's earnings per share of 196.5 cents. The fully franked dividend yield is 3.77% based on a full-year payout of 137 cents per share.

Due its mega-cap nature Woolworths will generally trade around fair value, with little prospect of significant price falls other than if the home improvement project turns out to be an over-ambitious waste of money. A feeling some Australians may already be familiar with.

Overall, Woolworths remains a good bet but it's not going to shoot the growth lights out for you! However, there's another far smaller stock we know that seems stuck right in the middle of a growth sweetspot. 

Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »