The Woolworths Ltd (ASX: WOW) share price continued its positive run on Monday and hit a multi-year high of $35.87.
When the conglomerate’s shares reached this level it meant they had gained an impressive 22.2% since the start of the year.
Why are Woolworths’ shares at a multi-year high?
Woolworths’ shares have been on fire this year thanks to a number of factors which include an improved performance from its key businesses in FY 2019, a major share buyback, and news that it plans to follow in the footsteps of rival Wesfarmers Ltd (ASX: WES) with the divestment of non-core assets.
In respect to its performance this year, in the third quarter Woolworths reported total quarterly sales from continuing operations of $14,898 million. This was an increase of 4.2% on the prior corresponding period or 5.1% when adjusting for the timing of Easter.
Pleasingly, all sides of the business contributed, even the embattled Big W business. Big W has weighed on its performance over the last couple of years but finally appears to be turning a corner.
Overall, this appears to have convinced investors that Woolworths will deliver a strong full year result at the end of this month.
Also supporting its positive share price performance was its $1.7 billion off-market buyback. This was announced after the company completed the sale of its petrol business to EG Group.
And finally, the market responded very positively to news that Woolworths plans to combine its Endeavour Drinks and ALH Group businesses and then demerge them.
Management believes the separation will allow the company to benefit from a simplified organisational structure, a greater focus on its core food and everyday needs markets, and opportunities to continue to build out its retail ecosystem.
Is it too late to invest?
With its shares changing hands at 28x estimated full year earnings, I think they are fully valued now and would suggest investors wait for a better entry point.
In the meantime, I would sooner buy Coles Group Ltd (ASX: COL) shares, which are trading at 21x estimated full year earnings. I believe they offer better value for money, especially given the company’s solid growth potential and generous dividend policy.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.