After many years as a dependable defensive investment that also provided impressive growth, the market seems to have gone cold on Australia’s largest grocer, Woolworths (ASX: WOW).

In the space of 24 hours last Thursday, when the full year results were announced, the retailer’s share price fell 5.5%, wiping some $1.9 billion from its market capitalisation. Since the announcement, the cumulative fall is now 7.8% in the space of just one week.

When prices and profits diverge

Since listing almost 20 years ago, Woolworths share price had been on a steady upward march, taking each new top in its stride and hitting a high of $35.05 in December 2007. Since then, however, the shares have fallen back under $30, and spent the last 3.5 years fluctuating between $25 and $30.

While the past performance of a company can give you a sense – if not a guarantee – of its future success, the same can’t be said of a share price. There can be little doubt (with the ample help of perfect hindsight) that the Woolworths share price was overheated at $35.05 back in December 2007. The business, however, has simply kept delivering sales and profit growth year in, year out.

For a retailer with the majority of its business in the low growth category of groceries, Woolworths string of annual results (boosted by expansion and acquisition), have been nothing short of stellar.

Woolies keeps on keeping on

In the almost four years since its shares peaked, revenue has grown 28%, profit has jumped 64%, and dividends have risen 65%, yet the share price is down 28%. At today’s price of around $25, the shares provide a trailing yield of 4.9%.

This analysis is grounded on the rear vision mirror. For investors holding, or considering buying shares in Woolworths, it’s the future that matters. It’s in this vein that nervous or unconvinced shareholders have been selling, resulting in the recent share price drop.

Growth is slowing

Woolworths shareholders have reason to be wary. After all, the company’s revenue growth rate has been falling – to under 5% in the last financial year, and net profit fared only slightly better at 5.1%. For a company – and shareholders – used to stronger top and bottom line results, many are wondering if The Fresh Food People’s best days are now behind it.

Woolies main competitor, Wesfarmers (ASX: WES)-owned Coles has been resurgent, beating Woolworths in each of the last 7 quarters in the closely watched ‘same store sales’ metric. Sure, Woolworths is trying to grow from a higher sales base – always a tough ask – but the question remains whether Woolies have maxed out their opportunities.

Lastly, in a very unusual step for a company which prides itself on developing internal talent, Woolworths recently tapped former Tesco and Royal Ahold executive Tjeerd Jegen to head up its flagship Australian Supermarkets & Petrol division. The company acknowledged the rarity of an external appointment, but defended the choice by citing Jegen’s experience with multiple store formats as well as a successful private label (home brand) business.

A sign of things to come?

The question for investors to ponder is whether the company can recapture its past glory, or if the growth trajectory we have been accustomed to is now firmly behind it – and then pay a fair price based on the outcome.

Companies who find themselves in a position of slowing growth after many years of superior returns can be quite difficult to analyse. Some rebound strongly from a period of underperformance, while others merely find it a taste of things to come.

In the short term, we shouldn’t expect much from Woolies, with the company itself guiding expectations lower for the current financial year.

That said, Woolworths has an enviable and likely unshakeable share of grocery sales in Australia, has been driving growth through expansion, particularly of their Liquor business, and has high hopes for the nascent Masters home improvement chain.

Foolish take-away

The recent recruitment from outside the company is probably the exception that proves the rule – Woolworths corporate culture and shareholder-friendly management ability shouldn’t be underestimated, and they have the people, capability and brand to drive the business forward.

In this case, while I’m not sure whether Woolworths can recapture the very best of their glory days, I think today’s price gives investors a great opportunity to buy one of Australia’s best businesses at an attractive price, particularly when supported by a dividend yield of almost 5%.

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