Woolies really is a great business, and will be around for a long time to come -- but it's a very mature market facing increased competitive threats, and margins will likely come under added pressure. Growth is the issue, and the current price is simply not justifiable in my view.
As I write, the PE is around 23 -- for a business whose sales have been declining (on average) for several years. Moreover, margins are coming under added pressure -- not just from the likes of Aldi and Costco (which are gaining increased share) but also Amazon. In fact, in this AFR article, Amazon is supposedly selling a range of products at around half the Woolies shelf price.
Amazon has only 1% market share in this category, but it's growing at close to 40% per annum and will continue to become a much more dominant threat.
Longer term, I find it tough to expect more than low single digit type growth, at best. Indeed, the consensus EPS growth forecast from Morningstar is ~4% for the next few years.
Pretty much the same thing can be said about Coles (ASX:COL).
See my forecasts page
