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.