Shares of Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) have recently skyrocketed. Like its larger peers Whole Foods Market, Inc. (NASDAQ:WFM) and The Fresh Market Inc (NASDAQ:TFM), Natural Grocers benefits from demand for healthier products. Natural Grocers isn’t just a smaller version of another health food store, though. This grocery store has its own strengths and weaknesses, and five topics hold particular importance.
The Isely family took Natural Grocers public last year, and this family still has a great deal of control over the health food retailer. According to Yahoo! Finance, Natural Grocers has 60.2% insider ownership. The Fresh Market also has a sizable amount of insider ownership at 20.5%. Whole Foods has 0.6% insider ownership.
An IPO in a hot sector, such as health food, can create an opportunity for a company’s original owners to cash out at a high valuation. High insider ownership in July 2013 shows that the Isely family has confidence in Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), which makes a long-term investment in this grocery store look more attractive. The Iselys’ stake in this grocer could also have implications for short sellers.
The health food stores’ high valuations have attracted short sellers. The bears look most interested in Natural Grocers, as shown by the short percentage of float figures for these three grocers. On June 14, 2013, this statistic was 20.7% for Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), 15.1% for The Fresh Market, and 2.2% for Whole Foods, according to Yahoo! Finance. Whole Foods reports on July 31, which will provide information about the state of the health food sector in general. If Whole Foods posts good results for the third quarter of 2013, Natural Grocers and The Fresh Market could experience a short squeeze.
Health food stores pay very close attention to their stocking decisions. Natural Grocers provides a list of products it won’t sell, which includes products available at Whole Foods Market (NASDAQ:WFM) and The Fresh Market. For example, Natural Grocers does not sell alcoholic beverages and it does not have bakeries in its stores. Natural Grocers also doesn’t offer disposable shopping bags to its shoppers. Natural Grocers has still achieved rapid growth under these self-imposed restrictions, though.
Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC) also has lower margins than its peers. This grocer currently has a gross margin of 29%, lower than Whole Foods’ 36% gross margin and The Fresh Market’s 34% gross margin. Two important factors could affect health food companies’ future margins, though. First, higher demand for organic food could convince more farmers to grow organic food, lowering grocers’ overall supply costs. The rapid growth of health food companies makes this scenario look more likely. Health food stores also want to shed their reputation for high prices, which could mean lower margins. Elizabeth Smith, at Whole Foods, wrote an article about going organic on a budget.