It has been another tough day for share investors with the S&P/ASX 200 Index (ASX: XJO) down over 7% at the time of writing.
The Woolworths Group Ltd (ASX: WOW) share price has done better than most today, down by 3% so far, but after a market correction of over 20%, does this now place Woolworths in the buy zone?
Strong growth in online sales
Woolworths released its half year results in late February and overall, I believe that it was a very strong set of numbers with solid increase in sales and a rise in its earnings before interest and tax (EBIT) margin.
Over the past few years, Woolworths has been quite successful in winning back customers from its rival Coles Group Ltd (ASX: COL), with a strategy focusing on quality and service.
The supermarket giant reported that sales from its continuing operations increased by 6% to $32.4 billion, with its online division showing particularly strong growth of 31.6% to $1.65 billion. While online sales still only constitute around 5% of overall sales, the percentage is now large enough to have a significant impact on its bottom line.
I believe that there is likely to be an increase in online sale over the coming months in Australia, as more Australians choose the online option due to fears over the coronavirus outbreak, especially if people are forced to self-isolate.
Strong recent earnings growth
Woolworths has also seen strong recent profit growth. EBIT from continuing operations (before significant items) increased by 11.4% to $1.9 billion during the half year period, and net profit after tax (NPAT) from continuing operations before significant items increased by 15.7%.
I think that Woolworths is likely to be hit less than a lot of other companies by further coronavirus-related market declines. While sectors such as travel, education, and entertainment are likely to impacted further if the movement of people is restricted in Australia, the population still needs to buy groceries regardless. Woolworths is seen as a defensive asset and its large scale and high market capitalisation mean it is well equipped to handle any further impact to its business.
Foolish takeaway
At its current price, Woolworths shares are trading on a price-to-earnings (P/E) ratio of 17.2 and a trailing dividend yield of 2.8%, which grosses-up to 4% with franking credits included. With a 23% reduction in its share price since the beginning of the share market correction on 20 February, I think that the Woolworths share price is looking much more attractive. This places Woolworths in the buy zone in my mind, especially with its defensive properties and relative resilience to any further coronavirus turbulence.
