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.
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.
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Editor, The Daily Reckoning