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Analysis: Is the Woolworths share price good value in August?

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Are Aussie supermarket shares a good buy in August? The Woolworths Group Ltd (ASX: WOW) share price has climbed 6.9% this year but could be good value in 2020.

Why is the Woolworths share price good value?

I think Woolworths offers good exposure to non-cyclical earnings through its supermarkets business. 

The hotels and retail segments have dragged on earnings but I think they still have long-term potential.

The Woolworths share price trades at a solid price to earnings (P/E) ratio and may be a good short- to medium-term dividend share.

What do the numbers say about the Woolworths share price?

The Woolworths share price is outperforming in 2020. Woolworths shares have climbed 6.9% while the S&P/ASX 200 Index (ASX: XJO) is down 11.6% this year.

Despite that, the conglomerate’s shares are trading in the middle of their 52-week trading range. That means there could be some more upside for the Woolworths share price in 2020.

Woolworths is the second-largest company in Australia by revenue after Wesfarmers Ltd (ASX: WES).

That means Woolworths could be a solid cornerstone investment for a diversified ASX share portfolio.

The Woolworths share price is trading at a P/E ratio of 19.25 compared to 24.1 for Wesfarmers shares.

What can we expect from the August earnings result?

Supermarket sales have been strong in 2020 amid the coronavirus pandemic.

That may not be sustainable, but I think we’ll see some robust earnings numbers from Woolworths in August.

I’m also interested to see how the company’s technological investments are tracking.

Woolworths is expected to invest $700 million to $780 million in technology with a focus on high-tech distribution centres. That includes a 20-year initial lease term with Qube Holdings Ltd (ASX: QUB) as it looks to streamline its supply chain.

What are the risks?

The big risk that I see a significant slowdown in supermarket earnings as restrictions begin to ease. 

There’s also the potential drags on earnings that we’re seeing across retail and hotels. That includes the company’s ALH Group in the hospitality industry and Big W on the retail side.

However, this may be a good time to invest in a conglomerate like Woolworths. The diversity of earnings across the company’s portfolio could be a factor in delivering a solid dividend in FY20.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited and Woolworths 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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