As has been widely reported, last Friday Woolworths Limited (ASX: WOW) share price dropped around 10% after the leading retailer issued a profit downgrade in conjunction with the release of a weak set of interim results.
Tallied up, Woolworths' share price has now fallen 17% in the past 12 months and is trading at not just a one-year low but also a two-year low. If those stats weren't bad enough, what's more, the stock has underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and its peer Wesfarmers Ltd (ASX: WES) over not just the past one and two years, but for all of the last seven years!
That's an alarming situation for shareholders and not one they would have expected from this high quality, blue-chip company.
While this poor recent performance could turn some investors off, there are a number of reasons to remain positive about future returns…
Woolworths is still growing. The group managed to achieve a 4.7% increase in underlying net profit after tax to $1.384 billion for the half.
Management is taking a long-term approach. While the market is arguably being short-sighted and alarmist in selling the shares off, management has acknowledged a need to re-invest in the core supermarkets business to keep prices low and competitors at bay. Although this will mean lower profit margins in the near term, in the longer term Woolworths should hopefully emerge as a stronger, more competitive business.
A solid dividend payer. A full year 2015 dividend of $1.40 is expected to be paid (according to CommSec). With the shares closing yesterday at $29.82, this implies a fully franked dividend yield of 4.7%.
Market leading status remains. Despite the negative sentiment towards the stock, Woolworths remains a veritable giant and leader within the supermarket, discount department store, petrol retailing, liquor retailing and hotel sectors. With market leading economies of scale, Woolworths has created a significant competitive advantage which is valuable and difficult to replicate.
