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Summary

  • Whole Foods Market continues to have healthy revenue growth.
  • Whole Foods has grown in a controlled fashion and has a healthy balance sheet.
  • Whole Foods is operating in a growing market and is trading at a historically low P/E ratio.

Although Whole Foods Market (NASDAQ:WFM) may seem like a hip new upstart, the firm actually issued its initial public offering back in 1992 at a price of $2.125 a share. Today, Whole Foods has a market capitalization of $14 billion and a rising market presence. The firm may be partly responsible for a consumer shift in the United States towards a more expensive array of food items. It's evident that organic food and other more fanciful variants of regular groceries is a trend that's here to stay; we need to evaluate Whole Foods on a fundamental level so as to determine whether the stock allows for a good entry into the sector that it participates in.

Fundamentals

Looking at Whole Foods' trailing twelve month revenues, it's clear that the company is headed in a good direction. The cyclical nature of its business becomes apparent from the oscillatory quarterly revenue component of the graph.

(click to enlarge)Source: YCharts

Also visible from the graph is the violent fluctuation of Whole Foods' stock price. Although the revenue growth appears to have been healthy during this time period, investors are seeing potential risks with the firm and aren't keeping their money committed. Although Whole Foods' stock underwent large swings during the last several years, the firm has maintained a growing net profit, indicating that it underwent its growth in a healthy fashion. The firm also initiated increasing long-term investments during the most recent years.

(click to enlarge)Source: YCharts

Whole Foods hasn't been undertaking these long-term investments without maintaining a healthy reserve of assets. Of note is the firm's carefully accrued base of liabilities, one that seemingly moves in tandem with its assets. The current ratio (assets/liabilities) looks historically stable.

(click to enlarge)

Source: YCharts

Whole Foods appears to be operating in a growing market. The chart below indicates the rate of growth of organic food consumption in the United States. The industry appears to have taken a hit after the 2007 recession, but is well on its way back up. This could mean better profits for Whole Foods down the line.

(click to enlarge) Source: Statista

All these signs point to Whole Foods doing well. The issue is that this belief may already be priced into the stock. This seems less likely since Whole Foods is trading at a relatively low price to earnings ratio. As you can see below, the stock's price to earnings ratio has fallen in the last year even though the firm's revenue growth remains healthy.

(click to enlarge)Source: YCharts

Conclusion

Whole Foods Market has good revenue and is operating in a growing market. The stock has depreciated in the last several years because of investor concerns; it could be possible that investors see the company as having reached its maximum size. Judging by the rising prevalence of organic food options and the healthy balance sheet of the firm, this isn't the case. The low price to earnings ratio is also a strong indication that the stock is a buy right now.

Source: Whole Foods Is Well Fueled