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Could the Woolworths share price hit $45?

Could the Woolworths Group Ltd (ASX: WOW) share price hit $45?

Woolworths shares are currently trading at all-time highs and are currently available for $41.13 at the time of writing. In fact, a new all-time high of $41.45 was set just yesterday. It would only take a few percentage points to push Woolworths shares over $45 for the first time.

It’s been an incredible 2020 so far for Woolies. Woolworths shares started out the year at $36.28, but have banked a 13% gain since then on today’s prices.

If this same pattern holds (hypothetically) for the rest of 2020, then Woolworths shares can expect to be up almost 200% by the end of the year – just some food for thought.

Why are Woolworths shares charging ahead?

General market sentiment has been lifting most of the large ASX blue-chips in January so far. Other big ASX names like CSL Limited (ASX: CSL), Telstra Corporation Ltd (ASX: TLS) and BHP Group Ltd (ASX: BHP) have also booked substantial gains over the period.

But perhaps the biggest catalyst for Woolworths shares has been the announcement that German supermarket Kaufland is pulling the plug on its Australian expansion. The Australian grocery market is currently dominated by Woolworths and Coles Group Ltd (ASX: COL), with another German chain Aldi building its ‘third-player’ presence in recent years.

The entry of a well-funded international chain would have no doubt introduced further competitive pressures in the grocery market, which would have of course been bad news for Woolies.

Thus, the failure of this threat to materialise has been a primary driver of the Woothworths share price gains, in my view.

The Coles share price is also trading near all-time highs today at $16.40 – fresh off the new high watermark of $16.62 set yesterday.

Will Woolworths shares hit $45?

It’s difficult to say, unfortunately. It’s certainly possible that bullish market sentiment and momentum could drive Woolworths shares past the $45 mark. Woolies is a quality business, pays a fully-franked dividend and operates in a defensive industry – all attributes that investors are seeking in this low interest rate world.

But when I look at the current Woolworths share price, I see a price-to-earnings (P/E) ratio of 36.2 and a dividend yield of 2.48%. That isn’t an appealing pair of numbers from my perspective – especially for a supermarket. It seems strange to me that investors would want to push this P/E ratio higher and the dividend yield even lower from here.

Woolworths shares might indeed hit $45, but I’m afraid I won’t be at the party.

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Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra 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.

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