The usual knee-jerk response is to now label Woolworths (WOW) shares as an excellent opportunity for long term oriented investors

The usual knee-jerk response is to now label Woolworths (WOW) shares as an excellent opportunity for long term oriented investors. Because, you know, what only one year ago traded above $38 a pop is now available for less than $30. This must be the world's biggest bargain (cue: be greedy when others are faithful, says the Oracle of Omaha). Taking a leaf from the Coca-Cola Amatil (CCL) experience, however, suggests this story has a lot more chapters in it. Investors looking at the past 15 years are likely to ignore the fact that Woolworths' core operations enjoy a world beating EBIT margin of 8%. That margin is now going to drop. How far? How far exactly is going to determine the outlook for the share price. Still confident Woolworths shares are a bargain below $30? Watch that margin. Small erosion on $47bn in annual sales can have a huge impact. Just ask analysts at Morgan Stanley who, post Friday's admission something's rotten inside the Woolworths kitchen, have lowered their price target to $24. My Weekly Insights this week: (VIEW LINK)


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