Australian Investment Blog

Back on 23rd October, I released a very negative and “lonely” report on Woolworths / Wesfarmers – Woolworths has since fallen 16.7% and 22.4% at its worst. My logic was simple, the stocks are trading on very rich P/E’s and no risks are being factored in to profitability from the improving discount rivals e.g. Aldi and Costco. We only have to look at the experiences of major UK retailers, Sainsbury’s and Tesco to understand how real these pricing threats can become – see charts 4 & 5.Since the last report, my wife has actually managed to drag me to Costco and I was impressed to see things are basically half price, so what becomes of Woolworths and Coles? I feel it’s relatively simple evolution from here, their brand recognition and store location will reign supreme once they become more price competitive and hence accept shrinking margins.However, what has caught my attention over the last week is how negative the market has now become on Woolworths and a recent analyst site visit led to comments around inefficiencies. Both theses points make me start looking at Woolworths for some potential value.