The supermarket sector in Australia has been quite competitive, Coles has recently took over Woolworths as the leader in market share in the region, while Aldi is gradually gaining more and more market share and taking business from Woolworths and Coles. For the past three weeks, we have seen that Woolworths has been having a good run. The stock has rallied from the low $A20.5 to last Friday’s high at A$24.48, with huge volume of 13.5m shares happened just last Friday after the Company released the FY16 EBIT guidance. The CEO announced that there are clear signs of progress in terms of positive customer scores, team engagement scores and continued transaction growth. Despite this giant retailer seemingly standing strong, OTAS has picked up a few signs that this rally is perhaps triggered only by short covering, and that it may not be sustainable because of the stock’s high valuation, falling EPS momentum and descending dividend trend.
The % of free float shares on loan and the stock price of WOW AT has recently narrowed and crossed, as shown in the short interest graph below. The data is up to July 25th 2016 and it has taken into account the big volume day from last Friday:
The stock is highly expensive among the retailing space and its Asia ex Japan peers.
The OTAS Divergence graph shows that Woolworths is an outlier in the EPS vs. Price Graph below. Its price has been up 14.3% while EPS momentum is down by -3.56%. Analyst consensus is showing that the mean target price is at the A$22.58 level which is 4.2% lower than the current share price.
Forward dividend yield graphs is trending lower, another implication that the risk of falling profits could be taking place.