Is it time to sell Woolworths Limited?

Credit: Woolworths

Woolworths Limited (ASX: WOW) is facing stiff competition in supermarkets, liquor & petrol, a combined business sector which made up 88% of its recent quarterly sales.

Excluding the Home Improvement business, which includes Home Timber and Hardware and Masters (both of which are in the process of being divested), Woolworths’ supermarkets business accounted for 91% of revenue.

At the profit line, the dependence on supermarkets is even worse, with General Merchandise in damage limitation mode.

Unfortunately, growth from the likes of Aldi, Costco and Wesfarmers Ltd’s (ASX: WES) Coles is crimping supermarket profit margins and stunting growth.

Personally, I questioned why Woolworths’ management decided to sell the entire Home Improvement business over the profitable and presumably more valuable General Merchandise business (which includes Big W). Now, General Merchandising is undergoing a comprehensive review.

Is it time to sell Woolworths?

Without a Home Improvement business, I find it difficult to envisage a future in which Woolworths’ share price can outperform.

Even at today’s seemingly low share price the company trades at a premium price-earnings ratio to the market. An accounting gain from the sale of the Home Improvement business could be a catalyst for a share price spike, but it wouldn’t outweigh the benefits of investing in another growing business (see below). Intrinsic values could pump up a few dollars, but not enough to establish a suitable margin of safety.

Therefore, if lower profit margins within the all-important supermarkets business are anticipated, the risk may still be to the downside at today’s price.

Foolish takeaway

I made a mistake buying Woolworths’ shares in 2015 in the hope of a turnaround play. While that could happen — although it will take a few years to come to fruition — I think recent initiatives will be of little help to the long-term growth prospects of the company.

I recently sold my shares to find other, faster-growing dividend shares.

Indeed, rather than buy Woolworths shares, I'm looking for other - faster growing - dividend shares to add to my portfolio, like the one The Motley Fool's expert analysts hand-picked as their best dividend share idea for 2016. Simply click here to gain access to their comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.