Woolworths Share Valuation

Woolworths Share Valuation

Since 2015, its yearly dividends have fallen from $1.39 per share to $0.67.

Buy, Hold or Sell

No doubt, shrewd investors are running their rulers over Woolies shares. After all, it’s not every day one of Australia’s biggest and most well-known companies falls from grace – although, Telstra Corporation Ltd (ASX: TLS) might not be far behind (it’s down 21% over the past year).

At any time successful investing often comes back to the difference between price and value. Value is what something — in this case, Woolworths shares — is worth.

For example, the current Woolworths share price is $26.55. By itself, that says nothing important to us other than what it would cost to buy one share in a supermarket operator.

Knowing what a company’s shares are worth and comparing it to the current price is the only way many investors know whether to buy, hold or sell.

That doesn’t mean you need to be an investing guru with 15 years of finance experience to invest successfully — after all, do you need a degree in ‘shopping’ to buy a t-shirt?

Dividend valuation

One way to value a company’s shares is to use its dividends and assume a growth rate for those dividends into the future.

For example, Woolies shares are forecast to pay 77 cents per share in dividends and I estimate they can grow their dividends at 2.5% per year.

I think 2.5% growth is fair because although Woolworths is one of Australia’s leading companies it is facing plenty of risks.

With a rate of return of 6.25% (which is calculated using Woolworths’ historical ‘risk’), its current valuation is $21.04.

Technical Analysis

Overall, the bias in prices is: Upwards.

Short term: Prices are stalling.

Intermediate term: Prices are ranging.

The projected upper bound is: 27.22.

The projected lower bound is: 25.81.

The projected closing price is: 26.52.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 36 white candles and 14 black candles for a net of 22 white candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 72.4576. This is not an overbought or oversold reading. The last signal was a sell 7 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 58.50. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 105 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 70. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 21 period(s) ago.

Rex Takasugi – TD Profile

WOOLWORTHS FPO closed down -0.220 at 26.510. Volume was 3% above average (neutral) and Bollinger Bands were 22% wider than normal.

Open     High      Low       Close    Volume
26.500  26.640  26.320  26.510  2,918,458

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish

Moving Averages: 10-period    50-period    200-period
Close:                       26.41            25.95            25.22
Volatility:                12                   17                 19
Volume:                   2,233,927    2,916,448   3,099,856

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

WOOLWORTHS FPO is currently 5.1% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of WOW.AX at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on WOW.AX and have had this outlook for the last 14 periods.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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