The 50% drop in stock price over the last 18 months seems justified. After all, revenues have been increasing in low double digits, guidance has been poor, margins have been shrinking, larger competitors like Safeway (SWY) and Kroger (KR) have started selling organic foods, so there is plenty of competition and above all, earnings have been falling.
The most recent controversy surrounding the CEO of Whole Foods posting frequent messages on Yahoo Finance's message boards is another blow to the company. Or is it? The attention that the company will get from all the chatter about the CEO, not to mention the subsequent ouster of John Mackey, which seems to be on the cards now, might actually be a good thing for the stock. Perhaps this is one of the reasons the stock was up almost 4% Friday on higher than average volume. Either that or some of 14% shares shorted were covered.
With almost 200 stores, Whole Foods is still a young chain. in comparison, Safeway has over 1700 stores in US and Canada. But does Whole Foods really compete with Safeway? Perhaps it competes with Safeway's upscale Pavilions chain, but certainly not Vons or Randalls. Whole Foods' specialty is organic foods, but the shopping experience there is far more superior than at most other grocers.
The point here is not to be outright bullish or bearish on Whole Foods. I think there is a contrarian opportunity to be had here, but investors on either side will need to be patient and adventurous.
WFMI 1-yr chart:
Full Disclosure: I do not own WFMI but my position can change anytime without notice.