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Fresh Market's Stock Gets Rancid

Not surprisingly, the Street rewarded Fresh Market with stock gains of more than 170%, peaking at around $60 in Fall 2012. Unfortunately, this also came with even higher growth estimates, which has led to where we are today. Management just hasn't been able to produce growth in sufficient quantities. And it looks as if there won't be much improvement in that category anytime soon.

This doesn't mean Fresh Market has suddenly turned into a bad business. In fact, it has been the company's success as well as that of Whole Foods that have caused the influx of new competition from "non-organic" retailers. As I've said, one of the main advantages of Fresh Market was -- not only did the company cater to the affluent shopper, but Fresh Market also offered products that were scarce. Today, that is no longer the case.

That said, given recent reports suggesting the organic/natural food market should grow to $80 billion in the next two years, I believe Fresh Market can still thrive as the pie grows bigger.

However, the question is -- what are investors willing to pay for a stock that is no longer posting gaudy growth numbers? Street expectations will have to come down. And with the P/E at close to 30, which is twice that of Kroger and Wal-Mart, I think expectations are still too high. I remain curious to see how management responds to the company's challenges. Until then, I don't believe the growth story is as compelling, which makes the stock very unattractive.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: LOW, HD, WFM, TFM, WMT, KR 

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