Should Woolworths Limited be your first share trade for the new financial year?

Credit: Woolworths

As investors rule off another financial year, it’s amazing to consider just how poorly many of the ASX’s largest, most “blue chip” stocks have performed.

One stock which has certainly garnered plenty of attention over the past 12 months is retailing giant Woolworths Limited (ASX: WOW).

Woolworths’ share price has slumped around 22% over the year as the business has dealt with issues ranging from a margin squeeze caused by the competitive Aldi supermarket chain, to the hard decision to exit the underperforming hardware business Masters.

With the stock currently trading close to its yearly low, contrarian investors will no doubt be eying off the stock, wondering if financial year (FY) 2017 could prove to be a better one for the share price of Woolworths.

According to consensus data from Reuters, analysts are forecasting Woolworths’ earnings per share (EPS) in FY 2017 to come in at around 133 cents per share, implying that EPS will bottom in FY 2016.

Based on a current share price of $20.90 this equates to a price-to-earnings (PE) ratio of 15.7 times.

For comparison, supermarket peer Wesfarmers Ltd (ASX: WES) is trading on a forecast PE of 17.2 times.

While Woolworths may appear to be relatively more attractive compared to Wesfarmers, on an absolute basis I remain unconvinced that there is any reason to buy Woolworths’ shares at current levels.

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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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