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Whole Foods Market's Growth Story Is Not Yet Over

Summary

Whole Foods Market's dominance in organic food retail is threatened by competition.

The company is driving a value strategy in order to sustain market share growth.

Analysts estimates for the stock's earnings growth going forward has been revised upwards making it a strong buy.

Whole Foods Market Inc. (WFM: NASDAQ) operates as a retailer of natural and organic foods. Whole Foods has long been dominant in large-scale natural foods retailing except the $17.3 billion company now has more competition nipping at its heels.

For several quarters, the stock sold off on earnings reports that fell short of investors' growth expectations. For instance, its second quarter earnings report fell short of analyst expectations and the stock fell nearly 14% in after hours trading to $41.45.

In its fourth quarter result reported November 5th 2014, the natural-goods grocer reported quarterly profit that topped analysts' estimates as revenue gained 9 percent over the prior year. The company's comparable store sales growth of 3.1%, also topped last year's growth of 5.9% and diluted earnings per share of $0.35, a 9% increase over the prior year gives the company a return on capital of 14%.

The Company also churned out $229 million in cash flow from operations and invested $185 million in capital expenditures which resulted in free cash flow of $44 million. Additionally, it returned $44 million in quarterly dividends to shareholders and repurchased $100 million worth of common stock or 2.6 million share units ending its 52-week fiscal year with total cash and cash equivalents, restricted cash, and investments of approximately $1 billion dollars.

With the stock presently at $48.18 per share and its PE hovering at 30.88 times earnings, there is little room for further price appreciation in the short term. However, with the amount of cash on its balance sheet as illustrated in its fiscal year highlights, I doubt that the Whole Foods' growth story is over.

Whole Foods recently cut some price points of its perishable goods in order to win greater market share for its fresh produce. This drew bargain hunters away from competition like The Fresh Market (TFM: NASDAQ) during Thanksgiving shopping and presented a better value message to customers.

With the beginning of the new fiscal year, Whole Foods Market expects to continue this value strategy by driving more investments in technology, marketing, and new and existing stores. This will force increased sales over the longer term. The Company expects to maintain expense discipline and improve its cost structure, with savings coming from coordinated purchasing and labor leverage.

Whole Foods Market presently has 401 stores and expects to cross the 500-store mark in fiscal year 2017. The Company sees demand for 1,200 Whole Foods Market stores in the United States. The Company also expanded into new markets and has signed 12 new leases. These include but are not limited to locations in the U.S such as Hoover, AL; Tempe, AZ; Santa Clara, CA; Denver, CO; Destin, FL; Towson, MD; Woodbury, MN; Lancaster, PA; Newtown Square, PA; El Paso, TX; Las Colinas, TX; and Seattle, WA.

Given the company's value proposition, analyst estimates for Whole Foods earnings growth going forward has been revised upwards making it a strong buy. I believe it is time for investors to dig in.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.