Whole Foods' Rotten Quarter

Whole Foods Market (WFMI) just reported a rotten quarter. The company's fiscal Q3 net dropped 31% to 24 cents a share. The Street was looking for 31 cents a share. The company also said that Q4 earnings will be 15 cents a share, which was far below the 27 cents Wall Street was expecting. The shares are down about 16% today and are now at a six-year low. (Call Transcript)

Nearly three years ago, I called out Whole Foods and its overpriced stock:

I’m a big fan of Whole Food Market (WFMI), but this stock is way, WAY over-priced. Last quarter, the company missed earnings by a penny a share. In the past few weeks, Wall Street has lowered this fiscal year’s consensus earnings estimate to $2.86 a share, and the stock is still trading at 53 times that. That’s almost as much as Google (GOOG)!

Look, I like organic kumquats as much as the next guy, but let’s be reasonable. Whole Foods’ earnings will probably grow by about 17%-20%. Not bad at all. The stock, however, is already up over 60% this year.

A stock can’t go up faster than its earnings indefinitely. At some point, something’s gotta give. That’s not finance, it’s physics. Right now, the stock is going up because it’s going up. The price and fundamentals have politely parted company. On Friday, shares of Whole Foods closed at another all-time high.

Disclosure: None

Comments

[User 162387:]

The stock is down 60%, not up 60% as stated in the article.

2008 Aug 07 09:11 AM

[dlawe:]

the quote is from 3 years ago- so AT THAT TIME the stock was up 60% for the year....

2008 Aug 07 12:11 PM

[User 68127:]

Don't break your arm patting yourself on the back! Who cares?

What should investors do now?

2008 Aug 07 02:05 PM