Blue-Chip Stocks to Avoid #1: Whole Foods (WFM)
Now, however, the growth story appears to be in jeopardy.
WFM’s last report featured revenues and earnings that came in below expectations, and the company lowered guidance for 2014. Whole Foods is facing increasing competition, which puts it in the difficult position of deciding whether to compete on price — with the associated hit to profit margins – or to hold the line on pricing and take the chance of weaker sales.
For this, investors still need to pay a premium multiple on WFM stock: 36.6 times trailing earnings and 28.7 times forward estimates. Whole Foods still is on track for better profit growth than the market as a whole, but investors need to pay through the nose to participate.
A scary technical picture accompanies this softening fundamental outlook. WFM stock has slipped below its 200-day moving average, and it has developed a triangle formation with support at $50. This is a negative setup that indicates WFM is in for a rockier road in 2014.
Put it together, and there’s no need to rush into Whole Foods here. Given the combination of a high valuation, fundamental headwinds and a questionable technical picture, investors should be able to pick up WFM stock at a better price before the year is out.