Woolworths Group Ltd (ASX: WOW) shares have been through a difficult period, but the tide appears to be turning.
After an uncharacteristically weak FY25 result weighed heavily on investor sentiment, the company is showing signs of stabilisation and recovery.
Here are five reasons why I think this makes now a good time to invest.
1. The share price has not fully caught up with improving fundamentals
Woolworths shares fell sharply in 2025 after a disappointing result highlighted cost pressures, softer volumes, and increased competition. While the share price has recovered from its multi-year low, it remains meaningfully below recent highs.
At the current share price of $30.20, investors are effectively paying for a business that has already absorbed much of the bad news. If operational performance continues to improve, there may still be scope for further upside as confidence rebuilds.
2. FY25 was a setback, not a structural problem
FY25 stood out as a rare weak year for Woolworths, particularly in its core Australian Food division. However, there was no indication that the company's competitive position had been permanently impaired.
The issues appeared to be cyclical and operational rather than structural. These included inflation-driven cost pressures, heightened price competition, and execution challenges. Importantly, management has acknowledged these issues and outlined clear steps to address them, rather than downplaying the result.
3. Early signs of a turnaround are emerging
Recent updates suggest momentum is gradually improving. In the first quarter of FY26, group sales increased 2.7%, with Australian Food sales rising 2.1% and ecommerce sales growing by double digits.
Customer metrics are also trending in the right direction. Net promoter scores improved compared to the prior year, average prices excluding tobacco have declined for several consecutive quarters, and digital engagement continues to grow. While progress remains uneven, the direction of travel appears more encouraging than it did six months ago.
4. Earnings are expected to recover steadily
According to consensus estimates provided by CommSec, Woolworths' earnings per share (EPS) are expected to rebound meaningfully over the next few years. Forecasts point to EPS of $1.28 in FY26, rising to $1.45 in FY27 and $1.66 in FY28.
Based on these numbers, Woolworths shares trade on a forward price-to-earnings ratio of 23 times FY26 earnings, which I think looks reasonable if the recovery plays out as expected. While the company is unlikely to deliver explosive growth, a return to steady earnings expansion could be enough to support solid long-term returns.
5. Dividends are expected to grow again
Income investors may also find Woolworths appealing as profitability improves. Dividends per share are forecast to rise from 99.5 cents in FY26 to 113 cents in FY27 and 135 cents in FY28. The latter represents a forecast dividend yield of 4.5%.
If those estimates are delivered, shareholders could benefit from a growing income stream alongside any share price recovery. For a business with Woolworths' scale, market position, and defensive characteristics, that combination may be attractive in 2026 and beyond.
Foolish takeaway
Woolworths shares have already endured a tough reset, and the company appears to be moving past an unusually weak year. With early signs of improvement, recovering earnings expectations, and dividends forecasted to rise, I think Woolworths could be one of the more interesting large-cap recovery stories on the ASX in 2026.
