This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Surviving Whole Foods In a Walmart World

Organic food makes up about 4% of total U.S. food sales, placing it squarely in a niche category that other grocers can exploit, albeit especially Walmart and Target. Organic food products not only compete against other food products for shelf space, but more or less everything from aspirin to the windshield wiper fluid in Wal-Mart and Target.

Separating Safeway, SuperValue, Kroger, and Whole Foods Market from the kings of retail is how much additional floor space can be allocated toward organic foods. Growing sales and or margins will result in relatively greater space dedicated to organic foods until equilibrium is found.

WFM Profit Margin (Quarterly) Chart

In other words, outsized organic food margins will get squeezed until it's not advantageous for others to encroach further into Whole Foods' space. This is why the company lowered its guidance and will face headwinds moving forward.

That said, Whole Foods is positioned to remain the leader in the space, but what shareholders failed to realize before the earnings release is that a stock trading with a price-to-earnings ratio of more than 30 requires top- and bottom-line growth to support a rich valuation.

WFM PE Ratio (TTM) Chart

Using a forward P/E of 21 and $1.80 in earnings for 2015, we arrive at a stock valuation of $37.80. If you're buying Whole Foods for more than $38 this week, you're probably paying more than you need to. Whether the company can maintain a P/E more than 30% higher than its next highest valued competitor remains to be seen. As the organic sales leader enjoying fantastic consumer appeal, I believe a P/E is warranted.

Current and prospective shareholders will want to keep the three-day rule in mind as part of the decision process to buy or sell. When a company reports disappointing earnings and guidance, it normally takes a full three days before the proverbial "last white towel is thrown in" and the overriding selling pressure recedes. That places the sweet spot for buying this dip late on Friday or Monday next week. Don't expect more than a dead-cat bounce though. Stocks typically take at least one or two quarters of solid reporting to fully recover.

If you're interested in buying at a discount, you may want to wait a few days first.

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
WMT $83.92 0.14%
WFM $56.49 -0.42%
AAPL $128.45 -1.50%
FB $78.94 -1.80%
GOOG $558.64 0.57%


DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs