Is Whole Foods Still a Healthy Investment?

With shares of Whole Foods Market (NASDAQ:WFM) trading at around $85.79, is WFM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Whole Foods has found itself in an interesting predicament. As you may already know, Whole Foods is the largest player in organic and natural food. This is what made Whole Foods unique and gave it its own niche for many years. However, other grocery stores have caught up, and many of them now offer what Whole Foods offers, only at lower prices. This has forced Whole Foods to lower its prices as well. This competitive pricing environment has led to a cautious 2013 outlook.Whole Foods is also making a risky move, which is to triple its store count in the United States. Since most stores are located in affluent areas, you might be wondering how this is possible. Whole Foods will be placing many of stores in less affluent areas, which is dangerous because it could take away the “place to be seen” allure that it has carried for many years.

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In another important note, CEO Walter Robb has stated that Whole Foods doesn’t expect an improvement in gross margin this year. If you would like some news to balance that out, there has been improved cost containment.

This comes down to Whole Foods versus The Kroger Co. (NYSE:KR) and Safeway Inc. (NYSE:SWY). That being the case, let’s take a look at some comparative numbers prior to moving forward and forming an opinion on Whole Foods.

WFM

KR

SWY

Trailing   P/E

32.32

11.17

10.02

ROE

14.68%

36.88%

17.03%

Operating   Margin

6.58%

2.86%

2.50%

Dividend   Yield

0.90%

1.90%

3.00%

Operating   Cash Flow

$961.72 Million

$2.84 Billion

$1.57 Billion

Short   Position

1.70%

2.20%

28.80%

Beta

0.59

0.64

1.03

 

Let’s take a look at some more important numbers…