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Summary

  • Whole Foods arguably spurred the entire health food craze here in the U.S.; now, the trend they've started is working against them.
  • Yesterday's earnings indicate that the company isn't growing as aggressively as the Street has priced the stock.
  • Opportunity to buy may not be until the stock touches the low $30 range.

Whole Foods (NASDAQ:WFM) has certainly been under the microscope over the better part of the last 6 months. Whole Foods has been the driver of the health food kick that the country is currently on.

Jim Cramer, to his credit, has been calling Whole Foods the driver of the health food trend for quite some time now. He cites companies like Kroger and Sprouts as products of Whole Foods' success. As we watch fast food companies like McDonald's (NYSE:MCD) try and tailor their menu and sales to fit the nation's new obsession with fit eating, companies like Whole Foods have been under pressure and questions have arisen about whether or not they can continue their aggressive growth rates.

Whole Foods has traded sluggishly this year. The company, at yesterday's closing price, was down 32.4%. The last 3 months alone have seen the company dive 21% while the major market indices have been treading water.

(click to enlarge)

The stock's only small spike was due to brief buyout rumors that were circulating about the company potentially being acquired by Publix.

The company came out on Wednesday and reported Q3 earnings of $0.41/share on revenue of $3.38 billion. EPS was up from $0.38/share and revenue was up from $3.06 billion from the same quarter one year ago. Whole Foods beat the Street's expectation on EPS, but fell short on revenue by about $10 million. The company's same store sales were up 3.9%, but that was versus a lofty 4.8% increase that the Street was expecting.

The company is likely feeling the effects of numerous other food retailers that are trying to touch on the organic and healthy foods market. Even companies like Wal-Mart (NYSE:WMT) are trying to embrace the healthy eating and healthy lifestyle notion for their food and produce departments.

The guidance the company offered didn't do well to energize investors. The company came in well under expectations for FY 2014 sales growth. Same store sales guidance was lowered to 4.1% to 4.4% from the company's previous range over 5%.

In keeping with the latest trend, the company also spoke about their efforts to try and label all GMO foods. In a nation where fat free, carb free, gluten free, and GMO free all seem to be the rotating weekly trends, it makes me wonder how long the capex spent on doing that is going to hold traction with the company's - well - careful consumer base.

After reporting, the company's shares were trading off about 5% Thursday morning in pre-market trading.

WFM PE Ratio (Forward) Chart

WFM PE Ratio (Forward) data by YCharts

What Whole Foods is likely to see in the coming weeks is a roping in of the company's multiple. As the company's stock will likely start to press lower to the low $30s, investors should perhaps wait for the forward multiple to come down a bit (perhaps around or under 20) before seeing this company as "cheap" and thinking about buying.

Best of luck to all investors.

Source: Whole Foods Beefs Earnings: Time To Buy?