Is the Woolworths Group Ltd (ASX: WOW) share price a buy?
I have been quite surprised at how strongly the Woolworths share price has performed over 2019 so far. In the calendar year we have seen its share price rise by 19%.
I'd attribute some of the gain to investors looking for relatively safe investment ideas away from term deposits and bonds which now offer extremely low income yields.
Some of the gain I would also put down to Woolworths' business choices. Shorter-term investors love divestments, special dividends and buy-backs because it can unlock and return value to the shareholders.
Woolworths has sold its petrol business to EG Group and now plans to sell off its drinks (including Dan Murphy's and BWS) and hotel businesses which it plans to combine and divest as one company which may lead to further capital returns. However, my worry is that Woolworths is now trapped as just a supermarket company in a very competitive industry where profit margin growth could be very difficult. Plus, Coles Group Limited (ASX: COL) looks re-invigorated for another round of competition.
If Woolworths can keep growing same store sales, despite the current environment of reducing prices, then the company may hold up to be a decent investment.
Woolworths is currently running a Lion King promotion where shoppers get to collect Ooshies, little Lion King figures, when they spend over a certain amount. The hope is that shoppers will spend more than normal to collect the whole set of 24. Shoppers also could win a holiday to Walt Disney World Resort in Florida.
Foolish takeaway
Woolworths is trading at 25x FY20's estimated earnings. I think this is just too expensive to achieve a long-term market-beating investment with such low sales growth, I believe there are plenty of better options out there offering better growth for a cheaper price.
