How to trade Woolworths shares

Trading Woolworths shares

Investors and traders can benefit from the price fluctuations of Woolworths stock by utilising contracts for difference (CFDs).

In contrast to simply buying and holding a company’s stock with the aim of gaining passive income (dividends) or capital gains from share price appreciation, trading CFDs gives individuals the chance to benefit from the price movements of the Woolworths share price – both up and down.

Importantly, because CFDs are leveraged financial products, not only can individuals potentially reap larger profits – on a smaller initial financial outlay – but losses can also be larger.

That is: while the rewards of CFD trading are potentially higher than simply buying and selling shares, so too are the risks.

Understanding Woolworths: a brief history

Woolworths, originally named the ‘Woolworths Stupendous Bargain Basement’, opened its first store all the way back in 1924, in Sydney.

Even back then, the Group’s far-reaching ambitions were apparent. Speaking of this first store opening, the group’s founding chief executive officer (CEO), Percy Christmas, said: ‘Every city needs a Woolworths: Sydney has it now. Every man, woman and child needs a handy place where good things are cheap.’

Mind you, as history shows us, the company has expanded rapidly ever since, with operations that span food, retail, beverages and even hotel operations. This growth eventually led the company to formally list on the ASX in 1993, a year which the Group has described as ‘getting back on its feet’.

Indeed, though Woolworths may not be a flashy or fast-growing company, it has a history of delivering solid returns to its shareholders over the long term. For example, since 1999, the Woolworths share price has risen in excess of 500%.

Such a figure doesn’t include the group’s consistent dividend, either.

Yet even as retail conditions grow difficult and economic growth in Australia slows, Woolworths remains an iconic Australian business, commanding fierce loyalty from its consumers.

Woolworths shares: the basics

Woolworths shares trade on the Australian Stock Exchange under the ticker symbol (ASX: WOW), with the company long being a member of the ASX 200 benchmark.

As part of the food and staples retailing industry group, Woolworths is one of the largest companies listed on the ASX, commanding a market capitalisation of A$47.26 billion.

The current number of free float Woolworths shares outstanding is 1.26 billion. Additionally, at its current share price, the company has a respectable dividend yield of 2.71% and a strong culture of growing shareholder wealth through the issuance of dividends and buybacks.

Woolworths key personnel: who manages the company?

Below we take a look at some of Woolworths key staff that manage some of the Group’s most important divisions.

What is Woolworths strategy?

The bread and butter of Woolworths business model remains its Australia food operations. Though its business remains generally stable, competition has heated up in recent years with companies such as Costco and the German brand Aldi moving into the space and aggressively trying to capture market share.

Interestingly, even though Woolworths is one of Australia’s largest companies – with a market capitalisation of A$46.3 billion – the company has not been afraid to take an innovative approach to business.

The company has, for example, seen robust growth in its WooliesX – the digital-focused arm of the Group. Woolworths has also created strategic partnerships with the likes of Marley Spoon – a young, innovative food delivery business.

The company is also taking steps to turn around its retail operations in the form of Big W, which has struggled in recent years. On this front and in April, Woolworth’s management previously commented that: ‘We are not satisfied with the rate of translation of sales growth into profit with the announced store and DC closures underway to accelerate the path to profitability.’

To reduce costs, Woolworths has aimed to shutter underperforming Big W stores. Indeed, though BIG W saw losses of around A$85 million in FY19, this actually came in at the low-end of management’s previous guidance, which projected a loss of between A$80 million and A$100 million.

These business strategies are underpinned by a strong culture and set of values, that is united by a single, ambitious vision/purpose.

Here the Group posits: ‘United by our Group purpose, we create better experiences together for a better tomorrow, creates the framework for how we aspire to operate, to be better; for our customers, our team, the communities we serve and our shareholders.’

Woolworths fundamental analysis: how to analyse Woolworths shares

Below we take a look at some of the key fundamental metrics from Woolworths (ASX: WOW) latest FY19 results.

The Woolworths price-to-earnings ratio (P/E ratio)

According to the ASX, Woolworths (ASX: WOW) currently has a P/E ratio of 18.21.
By comparison, local competitor Coles (ASX: COL) has a P/E ratio of 14.06.

Woolworths dividend

As we have previously noted, Woolworths has a current dividend yield of 2.71%, according to the ASX. Though this figure may not be as high as some of the big four banks, Woolworths remains committed to the creation of shareholder value. In 2019, for example, the company returned a total of A$3.1 billion to shareholders.

Woolworths latest dividend came in at around A$0.57 per share, to be paid on 30 September 2019.

Woolworths shares: what’s the outlook moving forward?

According to the Wall Street Journal (WSJ)¹, the outlook for Woolworths (ASX: WOW) looks somewhat negative. Of the analysts currently covering the stock 2 rate it a buy, 4 rate it a hold and 7 rate it a sell – notes the WSJ.

Source

¹Wall Street Journal (WSJ), 2019