How High Can Whole Foods Market Fly?

Shares of Whole Foods Market (Nasdaq: WFM  ) hit a 52-week high recently. Let's look at how it got here and whether clear skies are ahead.

How it got here
The organic grocery retailer has been on a steady rise for years out of the recession, taking a few pit stops to catch its breath a couple times.

This year, Whole Foods kicked off its fiscal 2012 with a strong first quarter. Revenue rose 13% to $3.4 billion, with comparable store sales putting up an 8.7% gain. Net income rose a third to $118.3 million, or $0.65 per share. Fast-forward another three months to this week, and the company followed up with another quarter to call home about. Second-quarter sales jumped 14% to $2.7 billion, while comps increased 9.5%. The bottom line looked 31% bigger at $117.7 million, or $0.64 per share.

That earnings report in particular saw a pop, with shares gaining nearly 8% on the day. Whole Foods has just been marching steadily higher.

How it stacks up
Let's see how Whole Foods stacks up against some of its grocer peers.

WFM Chart

WFM data by YCharts

Let's add some fundamental metrics in for a deeper look.

Company

P/E (TTM)

Sales Growth (5-year rate)

Net Margin (TTM)

ROE (TTM)

Whole Foods 41.1 12.5% 3.7% 13.0%
Kroger (NYSE: KR  ) 24.2 6.5% 0.7% 12.9%
Safeway (NYSE: SWY  ) 11.3 1.7% 1.3% 15.0%
SUPERVALU (NYSE: SVU  ) NM (0.7%) (2.9%) (152.8%)
The Fresh Market (Nasdaq: TFM  ) 47.3 13.5% 4.6% 51.7%

Source: Reuters. TTM = trailing 12 months. NM = not meaningful.

There's no doubt that Whole Foods is pricey, but it sees higher growth and better profitability than its traditional grocery pals. In a sector known for razor-thin margins, Whole Food stands above the pack.

Kroger has been building up debt, with total debt increasing $903 million to $8.2 billion over the last year, and Safeway's comparable store sales ex-fuel were flat last quarter. SUPERVALU has its fair share of difficulties, but that could represent opportunity for value investors, as the stock is downright cheap.

The Fresh Market targets the same niche as Whole Foods, but is much smaller in comparison with only 113 stores, compared to the 324 locations that Whole Foods operates.

What's next?
Despite its premium valuation, I think Whole Foods will keep on delivering. It's one of those companies that's able to sell more than just products: Whole Foods sells a lifestyle. And that lifestyle ain't cheap; have you seen what they charge for organic raspberries?

There's good reason why Whole Foods has seen a handful of Stock Advisor recs and re-recs and remains a core holding to this day.

Interested in more info on Whole Foods Market? Add it to your watchlist by clicking here. It's a totally free service offered by The Motley Fool to keep you up to date on your favorite stocks. Start today using the links below.

Fool contributor Evan Niu owns shares of Whole Foods Market, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Whole Foods Market and SUPERVALU. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and The Fresh Market. Motley Fool newsletter services have recommended buying calls on SUPERVALU. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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