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Jim Cramer: What to Make of Whole Foods

NEW YORK (Real Money) -- Few exercises in stock price analysis are as fraught as trying to figure out the price-to-earnings multiple for moderating or, worse, declining, growth. It's a struggle on so many levels. Is the growth pausing? Are there secular concerns? Is it just mature and the halcyon days are over? Are the expectations just too high and we must permanently lower them?

All of these principles come into play when trying to figure out what to pay for Whole Foods (WFM - Get Report), which failed to deliver on expectations last night.

Here's a company that's classically valued like all retailers, by same-store sales. For years, Whole Foods spoiled us with same-store sales at 7% or even better. There have been hiccups, but it has been a pretty smooth run from $5 five years ago to $50 now.

But the stock had been as high as $65 last October when the company announced that because of competition and cannibalization and macro fears it was not going to hit its 7%-7.5% target. Instead comp sales had decelerated to 5.9%, which, in the world of consistent high-growth stocks is a very big deal. Plus, revenue growth projections downshifted to 11%-13% from 12%-14%.

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The stock got crushed immediately, falling to $57 from $64 and then, ultimately, $51 at the end of last month before rallying in the last few weeks because several analysts made worst-is-over calls ahead of the quarter.

Last night, we learned that the recent guide down from the previous quarter wasn't met, with the company first-quarter showing a 5.4% same-store sales growth and a 10% sales increase, producing 42 cents a share in earnings, a 2-cent shortfall. More importantly, the company shaded down fiscal 2014 (remember, it just finished its first quarter of the year) to $1.58-$1.65 from $1.65-$1.69. That implies a comp-store growth that will stay between 5.5%-6.2%, depending on gross margins. It also means that the company's prospective growth rate goes from 12%-15% year over year to 7%-12%, a rather dramatic slowing.

At the same time, the company, intra-quarter, expanded its target of its total number of stores to 1,200 from 1,000 and it is leaving that target unchanged, implying that the category's still got tons of opportunity.

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