Why Woolies shares are worth far less than they were last week

Woolworths shares fell more than 13% on market opening on Thursday and, at one stage, was down more than 15% during the day. No doubt, investors would have been distressed with their beloved share falling so heavily while others would have been scrambling to understand what happened.

The reason the share price fell is that Woolworths underwent a corporate action, as it split off the alcohol and gaming side of its business into a new entity called Endeavour Group (ASX: EDV). The intent of the demerger is to make the supermarket simpler and more streamlined, which I believe will be good for Woolworths.

However, before you get too excited and rush out to buy shares in Woolworths because they now appear cheap, you need to understand that the company is worth far less than what it was on Wednesday, given that Endeavour is now trading on its own rather than as part of Woolworths, which means a significant part of the value of Woolworths' balance sheet has been removed from their bottom line.

While Woolworths has been a great stock for a long time, I would recommend sitting back before buying into either company to see how the market reacts to the demerger. This is because with corporate actions it can take time for the stocks to settle, so you may be jumping the gun if you buy in especially with Endeavour Group given the issues and regulation around gaming and alcohol.

Best and worst performing sectors this week

Once again, the best performing sectors include Information Technology up more than 3% followed by Consumer Staples and Materials, which are both up more than 1%. The worst performing sectors include Healthcare down more than 4% followed by Financials and Utilities, as both are down more than 3%.

The best performers in the ASX/S&P top 100 stocks include Afterpay up more than 14% followed by IGO Limited up more than 5% and South 32 up more than 4%. The worst-performing stocks include Woolworths down more than 11% but as previously mentioned, this is not an accurate assessment given the recent corporate action. AMP, Bendigo Adelaide Bank, Oil Search, and CSL are also all down more than 6%.

What's next for the Australian share market

This week the All Ordinaries Index traded down again and is currently just more than 1% lower than last week although over the past month the market is up just under 2%. It has now been seven trading days since the All Ordinaries Index made a new all-time high although it has only closed higher on two of those seven days, which suggests the market is more bearish than bullish at present.

While it is still possible the Australian stock market could trade higher, without wanting to sound repetitive, I still believe the market needs to fall away with the fall likely to be in the vicinity of 8-12%, which would see the market fall to between 7000 and 6700 points. However, as I have said before, since COVID the market has had a mind of its own, so anything is possible. Given this, I urge investors to look for high-quality stocks to buy rather than speculate on low cap or speculative stocks.

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