Digestion Issues Loom for Whole Foods

My technical analysis background has taught me to follow the trend, and I've applied that lesson to fundamental analysis as well. So if management has a track record of doing things right or wrong, I tend to expect those trends to continue.

But Whole Foods'(WFMI) proposed acquisition of rival Wild Oats (OATS) leaves me struggling with this tenet. Wild Oats simply never achieved the success of Whole Foods, and the larger grocery giant has a long way to go in integrating the former.

Whole Foods' management certainly deserves the benefit of the doubt. The company has grown its business enormously despite the only relatively recent popularity of organic and healthier foods on a mass scale.

For years, Whole Foods posted same-store sales, revenue and earnings growth figures that were unheard of in the grocery business, at a time when the perception of the organic food customer was that of a hemp-wearing, granola-eating hippie wannabe. Either Whole Foods was in the right place at the right time or it helped to make organic foods fashionable.

Whole Foods' management, led by co-founder and CEO John Mackey, has successfully integrated acquisitions before. The company's knowledge of the grocery industry and marketing has allowed it to turn its purchases of businesses such as Bread & Circus and Mrs. Gooch's into positive contributors to the bottom line.