Is the bottom in for the Woolworths Limited share price?

Credit: Scott Lewis

What: Earlier this week, the share price of Woolworths Limited (ASX: WOW) dipped to $22.70 which put the stock within striking distance of breaking through its 52-week low of $20.50.

Since Wednesday however the share price has steamed higher and looks set to close trade on Friday at over $22 a share.

So What: While technical analysts will have all sorts of explanations and theories about what that share price action means, for fundamental investors the fact the stock failed to set a new low is more than anything a wake-up call.

There are likely many investors who have done their homework on Woolworths and concluded that it appears reasonable value at current prices. Despite coming to this conclusion, I suspect many remain on the sidelines. These investors have fallen into the classic investor trap of trying to time the market.

Now What: Companies often experience stumbles which lead to periods of share price underperformance and negative investor sentiment.

When these stumbles are short-term events which can be recovered from, often the beaten-down shares are an opportune investment.

Consider, for example when Ansell Limited (ASX: ANN) fell below $15 a share earlier this year after missing prior guidance; or when Cochlear Limited (ASX: COH) dipped towards $50 a share in early 2014 on the back of hearing device concerns. These were brief windows of buying opportunity for savvy investors with the courage of their convictions.

Is it now time for Woolworths?

While there are plenty of uncertainties surrounding Woolworths at present, that is arguably one of the reasons the share price is trading where it is today. In other words, the stock is not being priced on fundamentals. If the future turns out to be less bad than the market is currently pricing in, then there is a good chance the stock could well head higher.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.

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