The Woolworths Group Ltd (ASX: WOW) share price has fallen 9% over the past three months. It has become better value, but is it a buy?
Woolworths Group operates supermarkets, Dan Murphy & other liquor stores, Big W, hotels and its petrol business.
Management are actively looking to execute an IPO or sale of the Petrol business, which could unlock a nice amount of capital for the business.
Woolworths is no longer that rock-solid business that boasts of a growing profit and dividend every year single year. Competition from Aldi and Costco, as well as Woolworths management letting things slip, has made things a lot tougher.
The adventure into home improvement with the failed Masters business was a huge mess-up.
However, CEO Brad Banducci has focused on the right things at the supermarket to turn things around. Prices have been reduced to a more reasonable level, store-brand quality has been improved and service has been increased. There's no point trying to compete with Aldi on price.
I was quite impressed with the Woolworths FY18 result. Continuing operations sales grew by 3.4%, continuing earnings before interest and tax (EBIT) grew by 9.5% and earnings per share (EPS) grew by 11.4%.
Is it a buy?
I must admit I had completely written off growth for Woolworths a couple of years ago, so this recovery surprised me.
However, it's trading at more than 22x FY18's earnings. I don't think this is a good price to buy a business that is likely to grow at single digits for the foreseeable future.
I'd also suggest Wesfarmers Ltd (ASX: WES) and Metcash Limited (ASX: MTS) are unlikely to grow at double digits any time soon. I'd much rather buy growth shares at attractive prices like Citadel Group Ltd (ASX: CGL).
