Some of the best investment opportunities come along when the future appears to be at its most bleak.
For investors to buy shares when they are low in price and subsequently sell them when they are much higher in price, there must be a significant shift in sentiment. In other words, things are rarely cheap without reason.
So, yesterday’s release from Kantar that showed a further decline in Wm. Morrison’s (LSE: MRW) (NASDAQOTH: MRWSY.US) market share caused shares to fall towards the bottom of their 4 year range – trading just above 260p.
However, despite all of the doom and gloom that seems to be surrounding Wm. Morrison at the moment (such as a constant decline in its market share and negative like-for-like sales growth figures) could be just the opportunity that medium to long term investors had been hoping for: a time when it is possible to buy shares in the company at a low level.
Indeed, buying now could mean that days of lounging by the pool come sooner than expected. In other words, Wm. Morrison could help you retire early.
Evidence of the low price of the shares can be seen in the current free cash flow yield. This stands at 4.3% and, although this is not particularly high compared to companies in the wider index, it is high for a supermarket such as Wm. Morrison that spends a huge chunk of operating cash flow on capital expenditure.
So, for its shares to yield 4.3% when over three-quarters of operating cash flow is used up on capital expenditure is clear evidence that its share price is low.
Furthermore, its shares could be viewed as even cheaper if forecast free cash flow is used instead of historic free cash flow. That’s because Wm. Morrison looks set to cut capital expenditure due to the lack of top-line growth in the supermarket space (although it will still spend a hefty proportion of operating cash flow on its convenience store rollout in particular). This means that free cash flow should improve in future years, making its shares look even better value than they do now.
Hoping to retire earlier than everyone else? Buying good companies like Wm. Morrison when they’re cheap is one way of achieving this.
Peter owns shares in Wm. Morrison. The Motley Fool owns shares in Wm. Morrison.