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With or without Icahn, Whole Foods still has trouble

Whole Foods Market's (WFM) shares rose Tuesday as market talk emerged that activist investor Carl Icahn might have taken a stake in the organic and natural foods seller, but sources with knowledge of the matter told Yahoo Finance it wasn't true, mitigating the earlier advance.

The Austin, Texas-based company has seen its stock battered in recent months after a series of reductions in its sales forecasts, and for the year to date, it's down 31%. However, amid word that Icahn may be accumulating stock, shares surged. Recently, they were up 1.7% at $38.62, but the high for the session was $40.45, on volume that was heavier than normal.

Whether the gain lasts will depend on which version of events proves correct -- Icahn either bought shares or he didn't. Speculation that he's getting involved in a stock often has the effect of sending it higher, at least in the short term, as he's known to persistently press various corporations on the need to take action to improve their share prices. Apple (AAPL) was another of his recent well-known investments.

[Read more: Source: Carl Icahn not planning to bail out Whole Foods]

If, in fact, he didn't buy any shares -- and that will be known with certainty when he discloses his holdings in the next few weeks -- it will probably mean the stock returns to its depressed levels that have left it at a discount to many of its five-year average multiples.

Whole Foods has been a strong performer in the market for years, one that's had impressive revenue growth and been consistently profitable. It's had a strong following among fans, and at the end of the most recent quarter it had almost 400 stores. It's thrived on the idea that Earth-friendly patrons will pay up for sustainable seafood and packaged goods that don't have all the preservatives. Still, as consumers have gotten accustomed to "better for you" products, competitors from Sprouts (SFM) to Kroger (KR) to Wal-Mart (WMT) are also providing the organics for which Whole Foods is known. Analysts, in response, have expressed concern that Whole Foods either hasn't taken the other stores seriously enough or that the need to discount its higher-end prices would hurt profit margins.

But it's not the analysts that are the stock's main issue: Whole Foods has issued four straight sales warnings, an astonishing string of setbacks that's hurt the shares badly.

In a way, the company's own past victories are the biggest problem. In its 36 years, Whole Foods has turned into a business with nearly $13 billion in annual revenue. The affluent city and suburban shopper who's willing to deal with premium pricing might not be defecting yet in great numbers, but they're presumably at least open to options. Unless one is utterly immovable in their dedication to the Whole Foods experience, they can buy (essentially) the same goods for less at competitors.

Whole Foods is of the mind that it eventually can get to 1,200 stores in the U.S., although whether there will be enough customers at its price structure to support them is debatable. Current sales represent 2% of what is a $600 billion U.S. grocery sector, Whole Foods says, citing industry research.

Internal projections are that by the end of fiscal 2018, it will have 575 stores and $24 billion in revenue. But this leads back to the greater question of customers' willingness to pay. The company says it gets that, now matching prices and dealing in coupons. While that's great for consumers if it becomes more affordable and keeps its shoppers, the offset is that margins will almost assuredly suffer. And because Whole Foods is a publicly traded corporation, the latter is where Wall Street is concerned.

If earnings are at risk, the stock's best times are over. And, with the industry as it is, that means today's traders aren't likely to stay for too long. Not, at least, without Icahn.