If You Thought This Stock Would Be an Unhealthy Option, Think Again!

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Natural and organic food provider Whole Foods Market (NASDAQ: WFM) posted a mixed first-quarter recently. Though investors were not very happy with the results and the stock plunged sharply, I believe there are more reasons for joy and merriment. Let us check how.

The Quarter in Detail

Driven by higher product prices and more demand for healthy products, revenue surged 14% to $3.86 billion over last year. The company caters to a niche market where consumers are willing to pay a premium for good quality natural products. Most of them are unmoved by the price changes. Moreover, the supermarket operator’s new product offerings grabbed the attention of the customers, leading to higher sales.

Moving onto the bottom line, it exceeded the Street’s expectations. Earnings jumped 20% over last year, clocking 78 cents a share. Earnings increased in spite of huge costs incurred on opening 10 new stores as well as remodeling some of the stores. Whole Foods Market managed its costs quite well and deserves appreciation.

Attractive Market

Market for organic foods has been growing rapidly as customers get more and more health conscious, so much so that even beverage makers such as PepsiCo (NYSE: PEP) are entering this market. PepsiCo and many other beverage players have been expanding their product lines to include healthier beverages such as juices and other energy drinks. For instance, PepsiCo had launched a low calorie drink called Pepsi Next, which is being well received by consumers and has managed to register annual sales of $100 million. This has helped customers in keeping away from sodas, which are harmful for health. Also, it has helped the company witness a 5% organic growth in its fourth quarter and full year results.

In fact, PepsiCo also eyes the growing yogurt business, which has been the hottest product for all organic food companies. A typical example here is General Mills (NYSE: GIS), which has a wide range of frozen yogurts to attract customers in hordes. Also, General Mills’ addition of different flavors to the product has made people go gaga over it, leading to increased sales each quarter. Mills’ acquisition of Yoplait, a yogurt giant in Paris, proved to be remarkably beneficial to the company, helping its top line grow each quarter. General Mills registered 9% surge in yogurt category sales in Canada. Also, the company expects the yogurt sales category to perform even better with the introduction of Greek 100-calorie yogurts, which is the third best performing product in the segment.

Prospects Look Even More Interesting

Given the interests of other companies into the industry and the growing demand, it is obvious that a company like Whole Foods Market, which specializes in such products, is definitely going to continue its growth. Moreover, the company has been setting new records through growth in each quarter. This sets the benchmark, as well as the expectations, higher.

However, the company’s continuous new product launches, such as 70 new frozen products last fall, makes its future shine bright. It has also launched its new product line in January called Engine 2 – Plant Strong, which is again a low fat natural food and contains no added oils, sugar, or any animal product. Such initiatives will lure higher customer traffic going forward.

The organic food maker is not only strengthening its product offerings, but has also been expanding its geographical footprint. After adding 10 new stores in the first quarter, it plans to add another 100 stores in the next five years. This highlights the growth potential of the company.

Additionally, the retailer is also planning to have a low priced product line that will cater to lower income group people who find it difficult to buy Whole Foods’ products. This will lead to higher volumes and great growth.

The Takeaway

Overall, Whole Foods looks like a growing company and a great investment proposition. Its stock price has appreciated 146% in the last 5 years. Moreover, it has been repurchasing its shares, which make it even more attractive to investors. Its 11 new license agreements, 6 new locations, and many other expansionary initiatives make this company increasingly interesting. Investors should definitely not ignore this one.

justhimanshu has no position in any stocks mentioned. The Motley Fool recommends PepsiCo and Whole Foods Market. The Motley Fool owns shares of PepsiCo and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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