In my opinion, the Woolworths Limited (ASX: WOW) share price might not be great value at today's prices.
Woolworths share price
As can be seen in the chart above, the Woolworths share price has slipped away from the broader market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past five years.
In that time, Australia's largest supermarket operator pushed ahead with its Masters and Home Timber & Hardware businesses, widened its supermarket profit margins to 7% (making it one of the most profitable in the world) and announced the sale of its Petrol and EziBuy businesses.
When it finally gave in to pressure to close/sell Home Improvement, and its supermarket profit margins withered, its share price came tumbling down. Some prominent global investors like Magellan were quick to jump on board, but it continued its descent.
Woolworths: On the mend?
Fortunately, following a rebound in price last year the company's shares were again pushed back across the desk of shrewd investors.
However, I'm growing sceptical of Woolworths' ability to regain its former glory. Aldi is growing, new international competitors are entering the market, Big W is struggling, Coles still leads the supermarket pack and Amazon.com is close to setting up its online shop.
Conservative valuation
| Valuation Output | Weighting | ||
| Relative Valuation: | $18.30 | 33% | |
| Asset Value: | $18.19 | 33% | |
| EPV: | $25.77 | 34% | |
Here's the output from a valuation I undertook recently. This is only a preliminary and incomplete valuation since I'm planning to complete three more valuations in the next week.
However, so far, it appears Woolworths shares are worth close to $21, according to those valuation outputs and weightings.
Foolish Takeaway
Valuation is but a very small part of my overall investing process. However, when it comes to mature slow growth businesses like Woolworths I'm happy to be conservative and rely on my research. I'll update you when I complete my valuation.
In the meantime, it may be worth considering other ideas…
