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Whole Foods Market, Inc. (WFM) Sinking On Weak Earnings, Lowered Guidance Brought On By Scandal

Whole Foods Market, Inc. (NASDAQ:WFM) continues its 2015 swoon from a once-exorbitant valuation, with the stock down by nearly 12% in trading today following poor earnings results for the second quarter and lowered guidance for the full 2015 fiscal year released last night. Whole Foods announced earnings per share of $0.43 on revenue of $3.63 billion for the quarter, both of which came in below analysts estimates of $0.45 and $3.70 billion respectively. The company also lowered its growth guidance for established locations to the low single-digits, from previously estimating a range between low-to-mid single-digit growth. Even more worrisome for upcoming quarters is the severe drop-off in sales that the company has witnessed following the overcharging scandal that engulfed it earlier this year. New York City’s Department of Consumer Affairs alleged that the company was overstating the weight of packaged products like chicken tenders and vegetable platters. Established store sales sank to just a 0.4% increase to close out the quarter following the scandal, from a 2.6% increase before it came to light. Things have not improved much thus far in the third quarter, with sales up by just 0.6%. Shares have now tumbled by about 35% since their 52-week high was hit in February, and are down by 28.58% year-to-date.


Hedge funds appear to have been caught up in the hype and didn’t time their exits properly. At first quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase from five from a quarter earlier. Their aggregate holdings also increased by nearly 4% to $644 million, while the stock rose by about 3% during the quarter, meaning hedge funds slightly added to their positions collectively. Shares have crashed since then.

An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a world-class hedge fund can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 66 percentage points and returning over 123%, while hedge funds themselves have collectively underperformed the market (read the details here).

Insiders are also not showing much faith in their company, having made over 50 sales this year, and not a single purchase. CEO Walter Robb has been in the midst of the selling, shipping off over 18,000 shares this year, at prices near to their 52-week high.

With all of this in mind, we’re going to take a peek at the latest hedge fund action surrounding Whole Foods Market, Inc. (NASDAQ:WFM).

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