Whole Foods Market, Inc. (NASDAQ:WFM) was the go-to supermarket for those wanting to get their organic food fix. However, over the last few years, WFM stock has had trouble adjusting to a number of competitors that have encroached on its turf, such as Walmart, Target, Costco, and Kroger.
Making matters worse, Whole Foods has had trouble shaking off the perception that its products are overpriced. Last year, sales took a hit when the company was accused of overcharging customers for items in New York City. Regulators got involved and Whole Foods apologized and settled. It’s no wonder that investors have shunned the stock. Over the past year, WFM stock is down about 45%.
But there’s still a lot to like about Whole Foods and at the current stock price, this may be an excellent opportunity for investors to take a look.
1. The Stock Is Cheap
Whole Foods is ridiculously cheap compared to its historical valuations. The company’s price-to-earnings (P/E) ratio has been slashed by more than half over the last couple of years. It now sits at 20.47, down from about 45.00 in mid-2012. (Source: “Whole Foods Market PE Ratio,” YCharts, last accessed February 12, 2016.)
The company’s price-to-sales ratio has also been cut drastically. At today’s stock price, Whole Foods’ price-to-sales is 0.7, down from about 1.8 in late 2013.
Another indicator that WFM stock is cheap is its dividend yield. WFM stock sports a 1.87% dividend yield, up from a yield of about 0.90% in early 2015. This is a nice bonus to encourage investors to give the company a closer look. (Source: “Whole Foods Dividend Yield,” YCharts, last accessed February 12, 2016.)
2. It’s Still Growing
Whole Foods is still a relatively small company. Its market cap is about $10.0 billion. In comparison, Kroger’s has a market cap of about 37.32 billion. Whole Foods currently has about 430 stores in North America and the United Kingdom. However, a few years ago, co-CEO John Mackey told CNBC that the company envisioned more than 1,200 stores in the United States alone. (Source: “Whole Foods CEOs: We want 1,200 stores in US,” CNBC, December 17, 2013.)
If Whole Foods is still sticking to that plan, the company is still very early in its growth story. As more people around the world become more health-conscious and make healthier food choices, Whole Foods will be able to open stores in new markets. In the long run, Whole Foods should be a larger company than it is now.
Whole Foods is also about to open three of its downsized, lower-priced 365 Whole Foods Market stores. The store is meant to be “hipper,” aimed to attract millennials with tattoo parlors, hip beverages, and music inside its stores. If the idea catches on, 365 will open a new growth channel for Whole Foods.
3. Management Is Buying Back Stock
Whole Foods management announced last November the authorization to repurchase $1.0 billion of its own shares. As I have explained in my other articles, this is a sign that management also thinks the WFM stock price is cheap at today’s prices. It also points to confidence in the future of the company.
The bottom line: Whole Foods stock has taken a beating over the last couple of years, but the company is still growing and WMF stock’s valuation is as low as it has ever been in the last few years. Investors may want to take a second look at Whole Foods stock.