I am not short.
I am not in a hedge fund.
I don't own PUTs.
I don't own competitive stock.
I know that Whole Foods is not a Safeway, Albertsons, or a Kroger...but it is STILL a grocery store with all the same overhead cost issues that ALL grocery stores must face. Profit Margins are all about the same in the large store chains 2-4% with WFMI having a relatively modest 2.7% Profit Margin.
But, why do they command a 44 P/E and ridiculous 1.16 P/S??? Hype.
WFMI has no chance of going out of business ala WebVan so I'm not here to spread doom & gloom, simply a little reality. I shop at Whole Foods stores about 5 times per year and am happy with their store selection and prices for the most part.
In any case...congratulations to those that have invested in this stock & have recently taken your profits...and for those that are still holding the stock I have to remind you that your gain is only realized when you sell so don't be too greedy!
The correction is coming as the mutual funds, institutions, and pension funds begin to rebalance their positions and take their gains.
20% growth is indeed possible over the next few years they will be expanding into all major US markets and they have already successfully opened in Canada with more to come. The Manhattan store is doing unbelievable business and I predict at least two more sites there within two years.
Margins of themselves are not that relevant - i.e. every industry has different characteristics of margins and asset turnovers. Fused together they equal return on assets which is the truly appropriate measure to compare and contrast companies. WFMI's ROA is slightly better than average yet has been steadily rising.
There are numerous investors who would say that supermarkets are indeed a good business, not a bad business - recession-resistance, cash generating, lack of a dominant national player, few technology risks, few regulation risks, dispersed customer base, dispersed supplier base.
As has been shown on this board, using the long bond rate and a 20% earnings growth figure this stock is somewhat cheap if looked out over ten years. The reason the stock is expensive on a current P/E and P/S basis is that the bulls attach a frighteningly-high level of confidence to that 20% figure.
My view as articulated on this board is that the true earnings growth over time should be in the low teens - because of slight GM compression over time, little SG&A leverage available, stock option dilution, and a normalized top line growth in the mid teens. The company may have considerable difficulty meeting its store opening targets if one looks at the history ex-acquisition.
Also, now that S&P and others are using normalized earnings figures including stock options as expenses, this new methodology will have a major impact on WFMIs perceived earnings because of its 4m options outstanding - levels commensurate with technology stocks.
Please document for me why you thinkd WFMI will show earnings growth below 20%.
Yes.... I was reacting to the possible idea going to WMT in lieu of WFMI. Nonetheless, some of the major food chains, locally like Ralph's, Von's, and Lucky's have some organics, accessible afer passing the aisles and aisles of Fruit Loops, Cheetos, individually plastic wrapped High Fructose Polyurathane Saturated Air Puffs, etc., their prices aren't that much better, and in some cases for products like the Naked Juice line, more expensive.
You are in an extreme minority of consumers that don't have choices of places to shop. Do you live on the moon?
In the San Francisco Bay Area, where I reside, has competing grocery stores situated next to each other. The big chains are already responding to the "organic foods crowd" by setting aside a good portion of their produce section to certified organicaly grown vegetables and fruit.
Then there is Trader Joe's markets (which I have no affiliation) that are an alternative to Whole Foods, as are the local/regional chains like Diablo Foods, Andronicos, FoodMill, Apple Mart....which I have no affiliation with the aforementioned.
I have lived in New Jersey, Arizona, Texas, Washington and California. All those states had plenty of choices including large & small Natural & Organic Health Food stores.
I like Whole Foods. I have nothing against the company nor their stores, personell, etc... I patronize there stores maybe 5-6 times per year. My argument has been that WFMI stock is OVER-VALUED and will come down to a valuation that reflects a P/S ration between .60-.80 since their slim margins just will not sustain this valuation forever, therefore take some profits.
New to the board.
Walmart and others will eventually try and compete in this niche, I'm sure. In Colorado Safeway and King Soopers are already trying, without results, but their execution sucks and prices are very high. Anyone can sell a jug of Organic Apple Juice. That is all about price. Conventional grocers have been trying to do Oganic/natural perishables for years and have failed miserably. This is where WF intellectual capital is. This niche is a perisables game and Walmart and Costco don't do perishables well. It is labor intensive and high skill and they have to date been unwilling to invest in learning how to execute. If they were smart they would undertake this now, before WF is a monster. Until they do this WFM shoppers won't be swayed by cheaper prices on grocery items when the persihables are lousy. Cheap rotting carrots are still rotting carrots...not to mention meat, fish and cheese.
You've missed my point, as Wal Mart steals market shares from conventional grocers, the grocers will look for other nitches. I wouldn't be surprised if WM starrted to take advantage of the high GM and started to devote some floor space to organic/natural foods. WFMI mau be the dominant player today, but don't think they can have the whole thing without any competition.
Yeah, I'll fight the traffic and go to the big malls and go to Walmart, past their McDonalds with cokes, fries, etc. and shop for organics there. NOT. On the otherhand, some organics at Walmart would increase awareness and provide a wider base of customer to appreciate Whole Foods!
Here an interesting statistic, in areas where there is a Wal Mart supercenter, supermarkets are chargins 13% less for groceries. As WM continues to grow and dominate this area, other grocers will have to find other means to compete, hence they find voids in the WM footprint. I expect that more organic and natural foods will be the first thing they bring in.