Woolworths Group Ltd (ASX: WOW) shares have been having a tough time over the last 12 months.
During this time, the supermarket giant's shares have lost about 18% of their value.
This means that a $10,000 investment in Woolworths would now be worth approximately $8,200.
Whereas over the same period, the ASX 200 index has risen by almost 8%. This would have turned a $10,000 investment into $10,800.
That's a disappointing opportunity cost of $2,600 from investing in Woolworths shares.
But could the worst be over? Is now the time for investors to snap up the retailer's shares while they are cheap?
Well, Goldman Sachs certainly thinks it is. The broker sees significant value in its shares at the current level and has named a few reasons why it thinks investors should be investing today.
3 reasons Woolworths shares could be cheap
One of the reasons that Goldman Sachs believes investors should be buying the company's shares is its customer loyalty.
It notes that Woolworths has some of the highest consumer stickiness and loyalty among its peers. The broker expects this to drive market share gains.
Another reason it is positive is the company's ability to pass on cost inflation. It believes this will protect Woolworths' margins more than the market currently anticipates.
Finally, the broker highlights that Woolworths shares are trading well below historical averages. Given its positive sales growth outlook, it feels this is unwarranted and has created a compelling buying opportunity. Goldman summarises:
WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.
The broker currently has a conviction buy rating and a $39.40 price target on its shares. Based on its current share price of $31.54, this implies a potential upside of 25% for investors over the next 12 months.
In addition, the broker is forecasting 3.4%+ dividend yields from Woolworths shares through to at least FY 2026.
