What is Happening to the Woolworths Share Price?

What does WOW do?

Woolworths [ASX:WOW] is Australia’s largest food retailer. It shares a dominant industry position with Coles, but in recent years lower cost competitors have entered the market in order to chip away at WOW’s attractive margins. On top of that, Coles is now a formidable competitor following years of below par performance.

What’s happening to the Woolworths share price?

The chart below shows Woolworths’ share price performance over the past two years. As you can see, it’s been all downhill. In addition to the increased competition threats mentioned above, WOW destroyed hundreds of millions of shareholder wealth in the ill-fated attempt to take on Bunnings with their Masters home improvement business.

Woolworths Share Price

Source: BigCharts

The combination of these events has seen Woolworths’ share price nearly halve in two years. With the trend still firmly down, there doesn’t appear to be any respite for the stock at this stage.
Thanks to the Masters debacle and the underperforming supermarkets business, there has been significant management turnover. This could be good in the long run, but creates short term issues with things like staff morale.

What now for WOW?

I know many people that think WOW is ‘cheap’ because it has fallen so far. But that’s not the case. Despite the share price decline, WOW still trades on an above average price earnings ratio of 16 times forecast earnings. That makes it expensive compared to the rest of the market.

And given that the share price is still in a downtrend, I would be cautious about buying in here. Buying into a downtrend is like swimming against the tide. The odds are not in your favour.

Stay away from this stock, at least until the share price trend begins to turn around.

The fundamentals and the charting outlook both look negative for WOW. It used to be a great company, and it probably will be again in the future, but right now this is a stock to avoid. There are better options out there.

Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

If you’d like to know more, click here.

Greg Canavan
Editor, Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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