WOW share price in focus
Founded in 1924, Woolworths is a leading retail operator in Australia and New Zealand, with over 3,000 stores and more than 100,000 employees. As one of Australia’s largest companies by revenue and market share, Woolworths plays a significant role in the region’s retail sector.
The company’s core operations include supermarkets (operating under the Woolworths brand in Australia and Countdown in New Zealand), discount department stores under the Big W brand, and business-to-business (B2B) services through brands like PFD. However, Woolworths’ dominant 35%+ market share in the Australian grocery sector remains its key strength.
Woolworths is also a popular choice among ASX investors looking for dividend income. It has a strong track record of paying fully franked dividends, typically offering yields over 3%, and its revenue base, largely derived from consumer staples, provides a stable and defensive earnings stream. The company’s competitive edge lies in its scale, enabling efficient distribution and cost control, as well as its proximity to consumers, as many shoppers continue to choose supermarkets based on convenience and location.
The key metrics
For investors, WOW’s revenue, gross margin, and profit can provide valuable insights into the company’s performance.
WOW last reported an annual revenue of $67,922m with a compound annual growth rate (CAGR) over the last 3 years of 6.8% per year. While the absolute number is useful to know, the key point is the trend. We want to see a consistent, upward trajectory in revenue.
Gross margin measures profitability before taking into account overhead costs – it reflects the strength of the company’s core business operations. WOW’s latest reported gross margin stood at 56.0%.
Finally, the number we’re most interested in – profit. Last financial year Woolworths Group Ltd reported a profit of $1,711m. Three years ago they made a profit of $2,074m, representing a CAGR of -6.2%.
Financial health of WOW shares
Profitability is important, but equally important is the capital health of the company. We want to know about the company’s leverage, their capacity to pay debts, and their ability to generate a return on assets. One measure we can look at is net debt. This is simply the total debt minus the company’s cash holdings.
Woolworths Group Ltd’s net debt currently sits at $15,424m. Higher debt levels can increase sensitivity to interest rate changes and economic cycles.
Another figure we can look at is the debt/equity percentage. This tells us how much debt the company has relative to shareholder equity – this is also known as leverage. WOW has more debt than equity, with a debt/equity ratio of 300.2%. This level of leverage isn’t necessarily alarming if the company has stable revenue and cash flow, but it does introduce more risk.
Finally, we can look at the return on equity (ROE). The ROE tells us how efficiently the company is turning shareholder equity into profit – high numbers indicate the company is generating a lot of value for investors, while a low number raises concerns that capital isn’t necessarily being allocated efficiently. WOW generated an ROE of 1.9% in FY24.
What to make of WOW shares?
With profit trending downwards, low revenue growth, and low return on equity, WOW doesn’t look like the most inspiring pick, but it could still be worth digging deeper to understand their current situation and identify opportunities.
Please keep in mind this should only be the beginning of your research. Company quality is one thing, but making sure the valuation is reasonable is another entirely. There are many ways you can try to value a company. If you want to learn more about share price valuation, you can sign up for one of our many free online investing courses.
