Shares of Woolworths Limited (ASX: WOW) fell 20% in 2015, underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by around 18%.

For some, a wide margin of underperformance is a reason to run the ruler over a potential investment in the hope of securing a bargain. In certain circumstances, however, it can be like catching a falling knife.

According to The Wall Street Journal, nine of the 16 analysts surveyed have an ‘underweight’ or ‘sell’ rating on Woolworths’ shares. Currently priced at $24.53, the consensus fair value among analysts is $24.90. That means, the majority of analysts are avoiding shares in Australia’s largest supermarket operator.

Is Woolworths buy in 2016?

Going against the crowd, however, can produce the greatest returns for investors. Indeed, if you can distinguish between market ‘noise’ and facts, you could unearth an undervalued share.

Despite frequent patches of irrationality, however, share prices follow profit over the long-term. Unfortunately, for a company as large as Woolworths, turning around three consecutive profit downgrades is easier said than done.

Firstly, Woolworths’ share price woes in 2014 and again in 2015 can be traced back to not only an underperforming supermarket chain but also the company’s struggling Masters Home Improvement business and Big W. These businesses are facing stiff competition from strong local and international rivals.

Wesfarmers Ltd (ASX: WES), which owns Coles, Kmart, Bunnings, Officeworks and more, is grabbing land from Woolworths on almost every front. Together with an impending appointment of a CEO, Woolworths Chairman Gordon Cairns has many important decisions to make in 2016 if the company is to turn itself around in the short term.

Also, digital disruption, Aldi and Costco, present longer term challenges for the group.

Foolish takeaway

Warren Buffett, the world’s greatest investor, famously quipped, “turnarounds seldom turn.” On a personal level, in 2015, I believed Woolworths shares looked cheap. 15% in capital losses later, I now know I was hasty – and perhaps wrong altogether.

Hindsight is a great thing, but avoiding losing investments is even better. Therefore, with many questions yet to be answered by the team at Woolworths, long-term Foolish investors may want to look elsewhere for big dividend stock ideas…

For example, this "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool writer/analyst Owen has a financial interest in Woolworths.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.