WOW share price in focus
Founded in 1924, Woolworths is a retail operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. It is one of Australia’s largest companies in terms of revenue and market share.
Woolworths’ main operations include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), retailing through its discount department stores under the Big W brand, and business-to-business (B2B) brands like PFD. However, its 35%+ market share of Australian groceries is undoubtedly its crown jewel.
Woolworths is a very popular choice for many ASX investors seeking dividend income. Historically, it has consistently paid a fully franked dividend, usually at a yield of over 3%, and offers a very defensive earnings stream with most revenue coming from consumer staples. Its competitive advantage is best summarised as scale (distribution, low costs, etc.) and proximity (most shoppers still shop based on distance to the supermarket).
Since we consider Woolworths Group Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, Woolworths Group Ltd had an ROIC of 7.10% and revenue has compounded at 6.8% in recent years. If a mature business struggles to consistently hit 10% ROIC it could be a sign the business may not be investing its capital well. This is just a rule of thumb we follow.
ZIP shares
Zip Co was founded in 2013 and is a financial technology company. It offers a buy-now-pay-later (BNPL) service that is popular among retail consumers.
Zip allows customers to purchase items immediately and repay them over interest-free instalments.
Zip operates on a global scale with over 79,300 retail partners and 6 million customers. In September 2020, Zip acquired US-based BNPL company Quadpay to further establish itself in the US market.
WOW share price valuation
One way to have a ‘speedy read’ of where the WOW share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Woolworths Group Ltd shares have a dividend yield of around 4.37%, compared to its 5-year average of 2.92%. Put simply, WOW shares are trading above their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends are growing, or it could mean the share price is falling, or both. In the case of WOW, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
Since ZIP is more of a growth company than an established blue chip, a price-sales ratio might be a more appropriate assessment. The ZIP share price currently trades at a price-sales ratio of 4.00x, which compares to its 5-year long-term average of 5.81x. So, ZIP shares are trading below their historical average. However, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Just remember there are many different ways to value a share, like Zip Co Ltd.
