The Woolworths Limited (ASX: WOW) share price has rallied 27% in one year. Clearly, something is up.
Woolworths share price
Indeed, over the past few years, we have witnessed the Woolworths share price get slammed, falling from almost $38 in 2014 to below $21 last year. However, it now appears to be on the mend.
Here are three reasons I think Woolworths shares are a 'hold' today:
- A potential turnaround story. After years of underperforming its key rival Coles and Bunnings Warehouse, owned by Wesfarmers Ltd (ASX: WES), Woolworths made major changes in its supermarkets business and sold its Home Improvement venture, which included Masters. With a leaner more focused business, some investors believe Woolworths is once again becoming the go-to supermarket.
- Dividends. Woolworths was forced to cut its dividend to shore up its balance sheet. However, it is currently forecast to pay a 3% fully franked dividend to shareholders.
- Fair value. At its current share price pf $26.50, I think Woolworths shares are around fair value. That is, they are not overly expensive or cheap. Therefore, if I held shares I would not be in a rush to sell them.
Foolish Takeaway
Woolworths shares have hugely outperformed the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), and its peers over the past year.
If the company can continue to revive its brand and keep more customers coming in the door, I think it is worthy of a 'hold' rating today.
