Woolworths Limited (ASX: WOW) was one of the market's worst performing blue-chip stocks in the 2015 financial year (FY15). While it started the year trading near an all-time high, the stock plunged to a new three-year low, destroying shareholder wealth as the company lost nearly a quarter of its market value.
Despite Woolworths' disastrous run, it still has plenty of investors under the impression it has even further to fall. In fact, according to the Australian Securities and Investments Commission's aggregated short position report from June 25, 8.08% of the company's issued shares are a short position.
Should you own Woolworths Limited in FY16?
There is no denying the mistakes Woolworths has made. Indeed, even management has admitted to their errors with Grant O'Brien recently announcing he would step down from his role as CEO as a result of the disappointing returns under his leadership.
Indeed, Woolworths' woes have been well documented. The biggest issue lies within its core supermarket division due to management's intent focus on margins rather than customers, which has seen the group lose market share to rivals Coles, owned by Wesfarmers Ltd (ASX: WES), and Aldi. This has also led to two profit downgrades in the space of four months, with Woolworths now expecting a 12% decline in group earnings (after substantial items) for FY15.
At the same time, the company has pumped billions of dollars into its Masters Home Improvement chain which remains heavily cash flow negative, despite a lift in sales recently. Indeed, investors have every reason to be disappointed with the company's performance, and there is no way of knowing if the losses will continue to pile up in the near term.
In saying that however, I do believe now could be a great time to wade into the stock with shares currently changing hands for roughly $27 (down from nearly $39 just over 12 months ago). A change of management and strategy could be just what the group needs to get back on top of its game while its initiative to reduce costs and pass on the savings to customers should be enough to regain market share.
While investors wait for that to come to fruition, they can enjoy the company's forecast 5.1% fully franked dividend yield, which equates to a 7.4% yield when grossed up for tax credits.
