The thing about the share market is that although it can be quick and efficient at pricing in future expectations, the share market also has a habit of taking things to extremes.
This leads to euphoria and bull markets as investors extrapolate good times forever. Likewise, pessimism and bear markets generally entail expectations of continued problems.
With two of the ASX's leading blue chip companies having recently touched fresh 52-week lows its worth remembering that the market has this habit of over-selling bad news and over-buying good news.
Woolworths Limited (ASX: WOW) touched a 52-week low of $22.42 just a few short days ago but already the stock is trading over $1 higher at $23.53.
Meanwhile, Wesfarmers Ltd (ASX: WES) slipped to a 52-week low in November of $36.65 but has since rebounded solidly to trade almost $3 higher at $39.35.
Given the blue chip status of these two stocks, now could arguably be the right time to consider whether there is currently a buying opportunity presenting itself for long-term, conservative investors…
In the case of Woolworths, the share price bounce could represent a floor in the share price after having been sold down by over 20% in calendar year 2015.
Looking out to financial year (FY) 2018 and Morningstar's analyst consensus data shows a forecast suggesting the supermarket retailer could earn 128.5 cents per share (cps). This implies a rather hefty price-to-earnings (PE) ratio of 18.3x which could have investors questioning whether much of a bounce from these levels can be justified.
Meanwhile, with a FY 2018 forecast for earnings per share of 290.6 cps, Wesfarmers is trading on a PE ratio of just 13.5x which is arguably too low when compared on a relative basis with the market-wide multiple.
