Whole Foods Stock Poised for a Comeback (WFM)

Advertisement

Shares of Whole Foods (WFM) have gone stale, dropping a nasty 25% in just the past three months.

whole foods stock earnings wfm stockAs a result, a variety of Wall Street analysts have cut their price targets on WFM stock. Even famed investor Warren Buffet has weighed in, saying “I don’t see smiles on the faces of people at Whole Foods.”

Yet whenever there is tremendous pessimism there may be an opportunity — and I think this is the case with WFM stock.

Yes, there are reasons to be bearish. If anything, WFM has been erratic with is earnings reports. At the same time, the company faces growing competition, such as Sprouts (SFM) and The Fresh Market (TFM). And mainstream grocers are jumping into the game like Walmart (WMT), Costco (COST), Target (TGT) and Kroger (KR).

WFM Stock Is Ripe for a Rebound

But all this competition is actually a validation of the Whole Foods vision. And the good news is that the company has been establishing itself as the premier brand in the space since the 1970s.

WFM has millions fans on social media platforms like Facebook (FB) and Twitter (TWTR). A key to its branding success has been a constant focus on core values, such as selling the highest quality natural and organic foods, providing environmental stewardship and promoting transparency.

Whole foods has parlayed these factors into a powerful footprint. There are currently 421 WFM stores across 42 states, Canada and the U.K. In fact, 75 stores rack up more than an average of $1 million in revenues per week.

But the company isn’t standing still. Over the past five years, WFM has been implementing new systems, technologies and approaches to cut costs (during the period, operating expenses have come down by about 1.75 percentage points).

The company has also been implementing more of a value-based pricing strategy. True, this will put pressure on margins. But with the cost cutting, more offerings of private-label products and improvement in efficiency, the company thinks it can still sustain healthy gross margins of 34% to 35%.

Whole Foods is also launching a new chain of stores, called 365 by Whole Foods Market. While the details are still somewhat vague, there appears to be lots of potential. The new chain will target millennials, who like natural and organic foods at affordable prices. The size of the 365 store will also be much smaller, allowing for a more personal shopping experience — likely at a lower cost structure for WFM.

Create a new chain isn’t without risk. But then again, bold moves like this have made WFM stock the solid long-term performer it is today. And as for 365, it is certainly targeting an attractive category as seen with the success of companies like Trader Joe’s.

Whole Foods stock has the benefit of a strong balance sheet. Consider that there is more than $1 billion in the bank and little debt. The company has also been aggressively been buying back WFM stock — repurchasing $100 million worth in the latest quarter.

What’s more, the company has a history of innovation, and its 365 chain is a sure sign that the company will continue to prioritize that. If the new chain gets traction, there is likely to be a nice boost in sales. In other words, with WFM stock well off from its highs, this looks like a bullish entry point.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/whole-foods-wfm-stock-comeback/.

©2024 InvestorPlace Media, LLC