Whole Foods Market, Inc. (NASDAQ:WFM) owns and operates a chain of natural and organic foods supermarkets. This article will discuss key reasons to invest in Whole Foods.
Overview: Whole Foods Market
Whole Foods Markets is a leader in the organic food market sector. It continues to offer great value to investors looking to make long-term profits. And for those looking for an ethical and “green” investment, Whole Foods Market, Inc. (NASDAQ:WFM) offers produce and a variety of organic groceries plus prepared foods and catering. The natural food chain also supports sustainable agriculture and reducing waste and consumption of nonrenewable resources. Whole Food’s pro-environment mission is best reflected by its Whole Planet Foundation that was established to alleviate poverty in rural communities across the global village.
Let’s take a look at Whole Foods’ from a fundamental perspective.
The organic outfit is dollar strong in many ways, including revenue growth, a solid financial position, a history of earnings per share growth, continued growth in net income and good cash flow from operations.
The organic market king currently has a market cap of $15.8 billion, a P/E ratio of 32.00 – above the S&P 500 P/E ratio of 18.00; although shares are presently are down by about 6.5% in 2013. But Whole Foods Market, Inc. (NASDAQ:WFM)’ revenue in the first quarter of 3.5% beats other organic food stores. Revenues climbed by 13.7% since the end of the first quarter in 2012 which has pumped up the chains’ earnings per share by 20.0% in the most recent quarter compared to the same quarter a year ago – continuing a trend of positive earnings per share growth since 2011.
Analysts expect this trend to continue and for-see a $2.87 improvement in earnings this year compared to $2.52 in 2012. The company’s net income growth has consistently outperformed the S&P 500’s super market retail industry average. Net income increased by 23.4% compared to the same quarter in 2012 climbing from $118.33 million to $146.00 million.
The company is not without some weak links in the chain, the first of which is its focus on the US market. This makes Whole Foods Market, Inc. (NASDAQ:WFM) vulnerable to weaknesses in the US economy. The markets’ organic nature also subjects the outfit to product recalls. The company has recalled several products because of possible contamination.
For example Whole Foods recalled its dairy free bakery products in January 2012 because they contained milk products not stated as such on the labels. In November 2010, the Austin, TX-based branches recalled seven types of cheddar cheese because of possible E. coli or listeria contamination. These contaminants continue to be a challenge for the broader organic market. In short, product recalls can taint Whole Foods Market, Inc. (NASDAQ:WFM)’s brand.
Whole Foods Markets will continue to be a leader in the growing organic market as more people become health conscious. This means an increasing demand for organic foods going forward.
Over the past three years natural product sales through retail channels have grown by almost 7% annually as more players enter the field, including larger supermarkets like Walmart and Costco. And the King Kullen chain has pushed its way into the market by offering organic and gluten free items on its shelves. The supermarket has also opened its line of organic stores, “Wild by Nature.”
Whole Foods Market, Inc. (NASDAQ:WFM) faces a number of challenges. In addition to increased competition, the product recalls mentioned above could become a greater challenge in the event of an outbreak of contamination like E-Coli or salmonella in the natural food chain. That chain could also be disrupted by changes in the availability of natural and organic products resulting from competitors increasing their natural and organic product offerings.
Whole Foods Market, Inc. (NASDAQ:WFM) must also contend with the likelihood of new laws and regulations. There is increasing governmental scrutiny of and public awareness regarding food safety. The possibility of selling contaminated food could trigger government legal actions, private lawsuits, product recalls and other liabilities. If this results in monetary settlements, that could impact Whole Foods’ profits.