Whole Foods Market (NASDAQ:WFM) hasn't been performing well lately for investors (down 24.9% since last August), but a broken stock doesn't equal a broken company. In fact, these are the types of situations you want to look for -- when the company's weak stock performance doesn't match the underlying strength of the company. This often presents an investment opportunity. It might take a while in some cases, but patience is often rewarded in the investing world. We'll also take a look at a younger and slightly different version of Whole Foods, which goes by the name of Sprouts Farmers Market (NASDAQ:SFM)

Whole Foods is special
Whole Foods was the first certified organic grocer in the United States. This gave it a tremendous head start on other organic grocers that opened later -- after noticing the health-conscious consumer trend and wanting a piece of the pie.

By having such foresight, Whole Foods has been able to establish itself as a trusted brand name throughout the United States and to a lesser extent, Canada (eight stores) and the United Kingdom (nine stores). Overall, Whole Foods has 374 locations, with the majority of them in the United States. But Whole Foods has bigger plans.

Whole Foods is an ambitious company. It plans to have 500 locations by 2017 and 1,200 locations long term. Opening new stores always helps sales grow, but comparable store sales growth is even more important. Comps only include sales at stores that have been open for at least one year (53 weeks in this case). In order to drive comps, Whole Foods will focus on ambiance, experience, product selection, food quality, customer service, and price. Let's break that list down.

Whole Foods is known for its ambiance, shopper experience, and customer service. These are big reasons why many shoppers choose it over competitors. As far as product selection goes, Whole Foods focuses primarily on perishables. The big selling point here is that perishables are consumed quickly, which leads to significant repeat foot traffic and repeat sales. Regarding food quality, Whole Foods wants to be known for offering the highest quality in the industry; it doesn't just want to be known for organic and natural food. According to the company's 10-Q filing, this high quality has led to customer loyalty.

For price, Whole Foods will adjust to increased competition from other organic grocers. An unidentified spokesperson for Whole Foods told The Independent, "We're going to be investing more aggressively in price going forward, while continuing to take our expenses down." 

In all, you have a check mark in every area to drive comps. If you're not sold, then consider second-quarter comps growth for Whole Foods along with some other key numbers.

Comps and other key numbers
Second-quarter sales increased 9.8% to $3.3 billion. Sales aren't as important as comps, but since this was a record, it should be noted. And it's not the only record Whole Foods set for the quarter. Sales per square foot per week came in at $1,000 (another record). As far as comps go, they increased 4.5%. But if you're a savvy investor (a.k.a a Foolish investor), then you're always looking ahead.

For fiscal-year 2014, Whole Foods expects sales growth of 10.5% to 11% and comps growth between 5% and 5.5%. It also expects diluted earnings-per-share growth between 3% and 6%.

Let's not forget share buybacks and dividend payments. In the second quarter, Whole Foods repurchased $55 million in stock and paid $45 million in dividends. It currently yields 1.3%.

It would be difficult to find an organic grocer with as much momentum and potential as Whole Foods. Is it possible that Sprouts Farmers Market falls into this difficult-to-achieve category?

Big potential or just big dreams?
Sprouts Farmers Market has a unique angle to the organic grocer industry, which is "healthy food for less." The concept seems to be working.

In the first quarter, sales jumped 26% year over year, with comps skyrocketing 12.8%. You don't see comps growth like that often. This also represents 28 consecutive quarters of comps growth. And don't worry about the bottom line. Net income increased $33.7 million. 

As if that's not enough good news, Sprouts Farmers Market increased its full-year guidance. Below are some key projections:

Sprouts Farmers Market

Previous Guidance

Updated Guidance

Unit Growth

22-24 Stores

23-24 Stores

Comps Growth




$110 Million-$120 Million

$110 Million-$120 Million

Adjusted Diluted EPS



This basically comes down to slightly higher unit growth and moderate comps growth without an increase in capital expenditures. That's enticing. However, there's one key point that needs to be made when it comes to investing in Whole Foods vs. Sprouts Farmers Market. 

Whole Foods is only trading at 27 times earnings whereas Sprouts Farmers Market is trading at a much more expensive 62 times earnings. Furthermore, Whole Foods offers a 1.3% yield, while Sprouts Farmers Market doesn't offer any yield (this is expected since it's still in its early growth stage).

The Foolish bottom line
If you ignore multiples and dividends and just look at the underlying companies, then there is a high likelihood that both aforementioned companies will be long-term winners. They're in line with industry trends, and they're delivering on almost every key metric. At this point, Whole Foods is likely to be a safer investment considering its established presence and larger customer base.

Due to a high multiple, Sprouts Farmers Market is better suited for the higher-risk investor. The long-term result should be good, but it should come with a lot of stock price fluctuation before it gets there.