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Insiders at Whole Foods (NASDAQ:WFM) are selling. There may be several reasons an insider may opt to sell his stock, but in this case I'm inclined to think they may be on to something.

On March 6, Chief Executive Officer John P. Mackey sold 50,000 shares at $85.1723 per share, for which he received roughly $4.26 million. Then, on March 13, Mackey sold an additional 50,000 shares with an aggregate market value of $4,400,450, or $88.009 a share. All in all, this brings Mackey's direct ownership stake in the company to just 714,258 shares.

Mackey still owns an additional 50,711 shares in Whole Foods indirectly through a trust and a 401(k), but his stake is now less than 1% -- that is saying a lot for a guy who co-founded the company.

Now, Dr. John B. Elstrott, Chairman of the Board, is following suit. According to the filing with the SEC on March 18, Elstrott adopted a stock trading plan which "is part of his asset diversification, tax and financial planning strategy. Under the trading plan, if the stock price is above specified levels, a brokerage firm will be authorized to exercise up to 2,500 of Dr. Elstrott's options to purchase common stock of the company and sell the issued shares."

Whole Foods is currently trading at $85.30, on a 52-week range of $80.81 to $101.86. Even at this relatively low price compared with its performance over the last year, the popular organic supermarket chain is priced at more than 32 times its earnings. Analysts seem to be somewhat encouraged, giving the company a mean one-year target of $103.15 and pegging growth over the next five years is expected at a rate of 18.68%, compared to its industry average of 14.75% -- But I just don't see it.

Whole Foods has a great business structure and it has a product offering that coincides very well with current consumer trends -- maybe this is the problem.

What Whole Foods used to do uniquely -- organic foods and other health-conscious goods -- is starting to be a cause adopted by even smaller supermarket chain. Thirty years ago, when Whole Foods was gaining ground, finding tofu or organic cheese at most markets was impossible, let alone finding specialty items like quinoa and coconut water. Today, these items are widely available. Consumers can even have such specialties delivered, if not through a local supermarket than by ordering online. Even Amazon (NASDAQ:AMZN) offers a range of foods available for delivery -- both organic and otherwise.

In other words, the market has changed.

That's not to say that Whole Foods hasn't done anything. Earlier in March, the company "became the first retailer in the United States to require labeling of all genetically modified foods sold in its stores, a move that some experts said could radically alter the food industry," writes the New York Times. And, it could help matters. President of Whole Foods, A.C. Gallo said that the new labeling requirement stems from customer requests and says that some of the manufacturers Whole Foods sources have seen a 15% increase in the sales of their labeled products. However, the new requirement is slated to be adopted over the next five years.

Last year, Whole Foods announced an initiative to bolster its presence in smaller and more suburban areas (WSJ). The idea was to spread into areas where the rent is cheaper and the competition in the organic food market isn't as heated. While efforts showed some success early on, the benefit of that type of initiative is going to be difficult to maintain given that most major supermarkets and discount grocery stores, like Wal-Mart (NYSE:WMT)'s Supercenter, are offering organic foods from many of the same companies carried by Whole Foods and, often, at cheaper prices.

My bet is that Whole Foods is on a slippery slope. I can see why insiders are selling. I think that Elstrott's ploy to sell his stock only when the stock reaches a certain level is a way for the Chairman to get as much as possible when a rally does happen. Granted, I doubt any rally will be very long lived, but that could be why the Chairman is automating his sales.

I recommend investors sell Whole Foods when momentum is high. For those without positions, I do not think Whole Foods would make a good short position. It is much more likely Whole Foods will slip gradually rather than plummet.

Source: Insiders At Whole Foods Cash In Some Shares, Should You?