Go for the Green With Organic Markets
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Organic and natural food markets continue to expand their brands. And this is good for consumers’ health and investors’ wallets. Organic food and product shops have grown significantly for several years in terms of revenue and earnings growth while gaining market share in the retail grocery sector.
Based on the outlook of a number of these brands including Whole Foods Markets (NASDAQ: WFM), The Fresh Market (NASDAQ: TFM), and The Hain Celestial Group (NASDAQ: HAIN), prospects for future growth are quite healthy.
Whole Foods Market: The New Green Giant
Whole Foods is a leader in the green grocer business. The company has been opening new stores across the US while acquiring smaller regional green food stores. Whole Foods has been successful by taking advantage of the growth of the broader organics industry. And this success is likely to continue as more people buy into the “go green” mantra.
Market observers note Whole Foods has a solid record of revenue growth, and a strong financial position stemming from a history of earnings per share growth, continued growth in net income, and good cash flow from operations. The green grocer has a current market cap of $15.8 billion, and a price/earnings ratio of 32 – higher than the S&P 500 P/E ratio of 17.7.
Shares are hovering at the $55 per share mark, which could be a premium even though shares are down by more than 6% in 2013. So this could a good time to take some green off the table so to speak. However, the company posted its third quarter earnings last week and the numbers continue to look good.
In May Whole Foods completed a two-for-one stock split while delivering a 20.3% increase in diluted earnings per share. Their sales increased by a bit more than 12% compared to the same period in 2012. Going forward, the company is raising its fiscal year 2013 earnings per share range to $1.45- $1.46. More importantly Whole Foods anticipates sales growth of 12% to 14% for the 2014 fiscal year with an increase in earnings per share in the $1.69-$1.72 range – an increase of 17 to 18% over the current year.
Ultimately, this makes the company a good long term investment.
Whole Foods Competitors
Whole Foods greatest challenge is increased competition which could impact the outfits’ revenues and profitability. This includes the other market players mentioned above, The Fresh Market, and The Hain Celestial Group.
The Fresh Market is significantly smaller than Whole Foods, and also markets itself as offering healthy alternatives. But the little green grocer is having a tough go this year. The company missed earnings estimates for two consecutive quarters. And this has left many investors with a bad taste in their mouth.
Moreover, the company’s price earnings ratio is also a bit high at 40.78 as the share price floats at the $56 mark – about midway between the 52 week low and high of $36.51 and $65.69 respectively.
However, the prospects for future growth are good and the company plans to open a number of new stores. Fresh Market currently has 131 stores and will grow that number to 250 over the next five years. Further, revenues are expected to $1.52 billion in 2013 and $1.78 billion next year. But the caveat here is whether the outfit will actually meet those numbers.
Lastly, The Hain Celestial Group was formed by the marriage of the Hain Food Group and Celestial Seasoning – the folks once known for its organic teas. Now, Hain is a natural and organic food outfit as well as a personal care products provider.
The company operates primarily in North America and Europe and provides popular brands like Earth’s Best and Arrowhead Mills. In May of 2013 Hain acquired Ella’s Kitchen Group – an organic baby food provider. Ella’s international presence could be a natural bread winner for Hain going forward.
The Healthy Food Prognosis
Whole Foods has a history of great performance and will continue to grow as demand for organic food rises. The natural food chain also supports sustainable agriculture and reducing waste and consumption of nonrenewable resources.
In sum, green grocers will continue to thrive and expand their brands into the broader retail food sector. This is so because more people are becoming aware of the benefits of eating healthier and choosing food sources that are more environmentally sustainable. This will also be a boon other grocers feeding the green foods to consumers across the global village.
Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial, The Fresh Market, and Whole Foods Market. The Motley Fool owns shares of Hain Celestial 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!