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Why Investors Should Stay Away From This Organic Food Company

August 27, 2014 | About:

Whole Foods Market (NASDAQ:WFM) has performed badly in 2014. Shares of the natural sustenance organization are down considerably this year. Whole Foods is confronting intense rivalry from several angles in the natural nourishment industry, and the organization's disappointing second-quarter results show that there is no respite going ahead.

Powerless performance

Albeit Whole Foods' sales increased 10% in the first quarter, its earnings were level. Because of the fact that Whole Foods trades at an expensive P/E degree of 25, a level earnings performance is disappointing. Furthermore, administration's standpoint was also concerning.

Whole Foods was before a pioneer in regular and natural foods, as a result of which investors esteemed it more than its peers. In any case, the organization's development pulled in consideration from rivals and made Whole Foods powerless against rivalry.

The opposition is intensifying

Presently, numerous mainstream retailers such as Kroger (NYSE:KR), Safeway (SWY), The Fresh Market (NASDAQ:TFM), and Wal-Mart (NYSE:WMT) have entered this segment. Wal-Mart (NYSE:WMT), for instance, as of late entered into an arrangement with Wild Oats to sell natural nourishment products at lower prices.

Henceforth, the opposition in the natural foods market has increased, and Whole Foods is continuously compelled to make necessary moves to stay in front of peers. Whole Foods is venturing into low-income neighborhoods, smaller cities and suburbs. Remembering this, it as of late opened stores in West Des Moines, Detroit and Iowa, with one in the south side of Chicago expected one year from now. Prior, Whole Foods was focused on giving its products to the high-income class, and its prerogative drop down the income anchor will compel it to cut valuing, making pressure on the margins in the process.

Whole Foods' expansion plans don't stop here. Since the first quarter, it has included eight stores in six new markets. It is of the assumption that its EVA-based methodology to site selection will empower it to succeed in diverse markets such as Jackson, Mississippi, and San Luis Obispo, California. Presently, these expansion moves will require capital investments and again put pressure on Whole Foods' earnings going ahead.

Going ahead, administration is optimistic about its prospects. Likewise, Whole Foods is anticipating itself as more than just a market. As indicated by administration, "We are a restaurant and chief brand with sales of $2.5 billion in ready foods and bread kitchen and $1.7 billion in exclusive brands in the last year."

Moreover, the organization is enhancing its customer experience by investing in technology, which will empower them to join with its customers. The organization anticipates that it will add share as the interest for fresh, solid sustenance rises.


Plainly, administration remains optimistic about Whole Foods' prospects. Then again, it can't be denied that the organization is confronting stiff rivalry in the business. At the same time, its valuation isn't luring. As stated prior, Whole Foods is expensive in terms of last year's earnings, which can be said because its earnings are expected to develop at a CAGR of 13.5% through the following five years, underneath the industry normal. It also has a PEG proportion of 1.86, which again reflects that the stock is exaggerated. As such, it would be a decent thought for investors to stay far from Whole Foods, and in the event that they hold it in their portfolio, it is high time to think of exiting it.

Rating: 2.0/5 (1 vote)



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