Does The Fresh Market Deserve A Higher PE Ratio Than Whole Foods?

Includes: KR, SWY, TFM, WFM
by: Henry Swann

The Fresh Market (NASDAQ:TFM) delivers quarterly earnings results on March 7, 2012 before the open. The stock has been somewhat less than a stellar performer over the last year, returning around a 10% gain for shareholders, within a fairly volatile year with the stock dropping as low as $30.86. As of March 5 close, it sits just off its 52 week high at $45.49.

The most common comparison for TFM is with Whole Foods (NASDAQ:WFM), another upscale food retailer. The stores may seem comparable, if you haven't shopped in both of them. Whole Foods offers substantially larger stores, much more variety in food choices, and a vast array of prepared foods and places to eat them. The Fresh Market does offer prepared foods, but in most cases only for take home.

Whole Foods also dominates in terms of financial metrics:

Market Cap $15.07B $2.18B
Annual Revenue $10,107M $974M
Earnings Per Share $2.07 $0.62

Whole Foods had a stock price appreciation in the last year of 40% compared to Fresh Market's 10%. Despite this, TFM has a higher PE ratio at 73.97 to 39.86 and a higher forward PE of 34.46 compared to 30.83 for WFM (from Yahoo! Finance.)

Surprisingly, Wall Street has been patient with this high-flyer, rewarding the last two earnings reports with single day increases of 7% and 11% respectively.

Eventually, Fresh Market is going to have to deliver with strong growth, or Wall Street is going to stop pricing this as a high multiple stock and bring the stock down to levels of low margin grocers like Safeway (NYSE:SWY) and Kroger (NYSE:KR), which sport PE ratios in the low teens. Since the stock has had a decent run up of 12% year to date, this could be the quarter that the market loses its patience.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.