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Whole Foods Market Is Popular but Richly Valued

NEW YORK ( TheStreet) -- How popular is Whole Foods Market (WFM - Get Report)? This purveyor of natural, organic and prepared foods and beverages is so beloved it made the cover of Fortune Magazine.

How Whole Foods is Taking Over America may be overstated but from my own experience I can tell you the stores I've visited have become destinations for like-minded, loyal shoppers.

But as an investor am I willing to pay 34 times trailing earnings and nearly 27 times next year's for the pleasure of owning WFM's stock? Not at the moment, and not until I listen to the earnings conference call on May 6 after the markets close.



Whole Foods' shares closed Thursday at $51. Since the first trading day of 2014, when the stock closed at $57.07, shares of Whole Foods Market have struggled and are down almost 12%.

The following one-year chart offers some visual metrics to help explain why.

WFM Chart
WFM
data by YCharts

In spite of a healthy year-over-year quarterly retained earnings growth rate of nearly 42%, revenue growth has been unremarkable. The green line above speaks to why I'm not going to buy a stock with a forward (one-year) PE ratio of 27.

The company's diluted quarterly EPS year-over-year growth rate (green line) of less than 8% needs to improve significantly before I sense a margin of safety that helps to mitigate a stock's downside risk.

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