Is Your Portfolio Lacking Health

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

Post World War-II, there was a baby boom in the US. Nearly 77.3 million Americans were born during the boom period, and now they are slowly entering the age of senior citizens. It’s well known fact that with age, health concerns arise, and people start following healthy dietary habits. Not just senior citizens, people of all ages around the globe are realizing the importance of smart eating lifestyle and this is exactly where America’s “first organic grocer,” Whole Foods (NASDAQ: WFM) comes into play.

Whole Foods which came into existence in 1980 is an organic food supermarket. The retail chain with a market cap in excess of $18 billion has more than 300 stores in US, UK, and Canada. The supermarket specializes in providing natural and perishable food items, and thanks to the growing health concerns around the globe, Whole Foods has been able to post consistently good financial results.

In the recent quarterly results, the company reported sales at $2.7 billion, which were 14% up compared to last year’s quarter. EPS stood at$0.63, surging 27% and gross profit margin swelled by 36%, up 0.62%. Management also boosted projected EPS of 2012 by $0.07.

During the housing crisis years, in order to cut needless expenses, management reduced its surplus store area. Before the crash, the average store area stood above 50,000 sq. ft. which was reduced to 38,000 sq. ft. by the end of 2011. With careful placement and marketing of store products, the profit per square foot came in 29% higher for the stores built in 2011, compared to the stores in 2010.

The company opened 9 new stores in the last quarter, and is looking to open 7 more stores in the current quarter. The company already has 69 stores on the road to development, and management expects to increase the total store count to 1,000 by the end of this decade.

The company ended the recent quarter with $1 billion in cash reserves. Additionally, Whole Foods operates with little or no debt. We believe the company would either pay out the reserves in dividends or would speed up its expansive projects.

Whole Foods shares its market space with Kroger (NYSE: KR), Safeway (NYSE: SWY) and The Fresh Market (NASDAQ: TFM).

<img src="http://media.ycharts.com/charts/f79880cfef20907e1fddd4be6da81589.png" />

WFM data by YCharts

Whole Foods Market has outperformed its peers in terms of stock returns over a period of 2 years, by a significant margin.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Debt/Equity</p> </td> <td> <p>Gross Profit Margin</p> </td> <td> <p>EPS growth expected next 5 years.</p> </td> </tr> <tr> <td> <p>Whole Foods</p> </td> <td> <p>1%</p> </td> <td> <p>35.4%</p> </td> <td> <p>17.3%</p> </td> </tr> <tr> <td> <p>Kroger</p> </td> <td> <p>214%</p> </td> <td> <p>20.6%</p> </td> <td> <p>9.3%</p> </td> </tr> <tr> <td> <p>Safeway</p> </td> <td> <p>267%</p> </td> <td> <p>26.7%</p> </td> <td> <p>9.4%</p> </td> </tr> <tr> <td> <p>The Fresh Market</p> </td> <td> <p>29%</p> </td> <td> <p>33.7%</p> </td> <td> <p>22.7%</p> </td> </tr> </tbody> </table>

Source: Finviz

Whole Foods operates with very low debt/equity levels compared to its peers. Additionally, the company has the highest gross profit margins; analysts expect the EPS growth over the next 5 years to be 17.3%. In addition to these metrics, Whole Foods Market yields 0.57% paying out only 22% of its earnings.

"Well, something is better than nothing right?"

We believe that with the ongoing shift to natural and organic food items would benefit Whole Foods. The company has aggressive expansion plans, but conservative debt levels. The company has outperformed its peers in terms of stock returns and has a good mix of financials and fundamentals. It is due to these reasons that we believe Whole Foods Market would continue its upswing.

Dig Deeper

It's hard to believe that a grocery store could book investors more than 30-times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this brand new premium report on the company, The Motley Fool walks through the key must-know items for every Whole Foods investor, including the key opportunities and threats facing the company. We're also providing a full year of regular analyst updates to go with it, so make sure to claim your copy today by clicking here.

 


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