Woolworths Group Ltd (ASX: WOW) shares have had an excellent year.
The supermarket giant has climbed around 30% over the past 12 months and reached a new 52-week high this week.
That is great news for existing shareholders, but it also makes the decision to buy today more difficult.
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Why investors have returned
I think Woolworths is beginning to regain some of the confidence it lost after a difficult period.
The company has been investing in lower prices, product availability, convenience, and the overall shopping experience. Those efforts appear to be helping it reconnect with customers and improve sales momentum.
Australian Food sales rose by 5.9% during the third quarter, while group online sales increased by more than 20%.
I like the online progress because it strengthens the relationship Woolworths has with customers. Shoppers can move between stores, home delivery, and click-and-collect depending on what suits them that week.
Everyday Rewards adds another layer by giving Woolworths a better understanding of customer behaviour. That data can help the company personalise offers, improve promotions, and encourage shoppers to return more often.
The automated distribution centres should also support the business over time. Moving products more efficiently through the supply chain could improve availability and reduce some of the costs involved in serving a large store network.
I think these investments can make Woolworths a stronger retailer, even if their full benefit takes time to appear.
What does the valuation look like?
At a share price of around $40.55, Woolworths trades on a price-to-earnings (PE) ratio of 31 times forecast FY26 earnings, based on the consensus estimate of $1.30 per share.
The valuation falls to roughly 27 times FY27 earnings and 25 times FY28 earnings, using consensus forecasts of $1.48 and $1.64 per share.
Those multiples are quite high for a mature supermarket business, but if its growth continues beyond this forecast period, today's valuation may become easier to justify.
The dividend could grow as well.
Consensus estimates point to dividends per share of 99.5 cents in FY26, $1.13 in FY27, and $1.28 in FY28. At the current price, those forecasts imply dividend yields of approximately 2.5%, 2.8%, and 3.15%.
What could disappoint investors?
The market now expects Woolworths to keep improving.
That leaves less room for weak sales, higher costs, or delays in the benefits from its supply chain investments.
Competition also remains intense. Coles Group Ltd (ASX: COL), Aldi, Costco, and independent retailers all give shoppers reasons to compare prices, while households remain highly focused on value.
Woolworths may need to keep investing heavily in prices to maintain its momentum, which could place pressure on margins.
Foolish takeaway
I still think Woolworths shares could be a buy for investors prepared to hold them for many years.
The company has defensive demand, a valuable loyalty program, a growing online operation, and opportunities to become more efficient.
The 30% rally means investors are paying a much fuller price for those qualities. I would therefore prefer to begin with a modest position or wait for a pullback before investing more heavily.
Nevertheless, Woolworths remains a business I would be happy to own. But at around $40.55, I think the shares are a long-term buy rather than an obvious bargain.
