Woolworths Limited: Are investors trying to be too clever?

Timing the market is never easy and waiting for a better time to buy Woolworths Limited (ASX:WOW) might mean missing out altogether.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What: If you've been following the saga of Australia's largest retailer Woolworths Limited (ASX: WOW) you'll know that the company has been copping plenty of flak for the perceived under performance of its supermarket business and for its decision to enter the hardware space with the mounting losses the Masters Home Improvement business is incurring.

So What: Investor concerns have led to the stock being sold off with the share price recently touching a four-year low of $24.11 in response to the group reporting a small year-on-year decline in earnings per share (EPS).

Of even greater concern however is the outlook for EPS Based on data supplied by Morningstar, having earned 194.8 cents per share (cps) in financial year (FY) 2015, Woolworths is forecast to earn 175.8 cps in FY 2016, 166.7 cps in FY 2017 and 160.8 cps in FY 2018.

Now What: The competitive market pressures from a rejuvenated Coles, owned by Wesfarmers Ltd (ASX: WES) and foreign entrants such as Aldi are undoubtedly putting pressure on Woolworths' profit margin and market share.

The company does however remain a leading, world class retailer with a dominant and entrenched market position.

The real question for investors is whether the outlook is already baked into the price?

It seems to me that some investors could be trying to be too clever by saying that the stock looks interesting but that there will be a better moment to buy – a suggestion that implies the market hasn't fully factored in the bad news to come or that the bad news will get worse.

Timing the market is inherently difficult and sometimes you are best of just buying a bargain when you see one. With the stock trading on a FY 2018 price-to-earnings ratio of 16 times perhaps a reasonable margin of safety already exists.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »