This Health Food Giant’s Issues Growing Profitable for Investors
For years, Whole Foods Market, Inc. (NASDAQ/WFM) was the top of the food chain in the sale of natural and organic groceries. Yet with success often comes competition.
Whole Foods is now finding itself in a fierce battle with new rivals, established grocers, and big-box stores all looking for a piece of the action in this higher-margin business, based on my stock analysis.
Whole Foods’ stock was devastated on Wednesday after the reporting of weak first-quarter results that clearly displayed the negative impact of competition on the company.
Whole Foods was also hurt by margin pressures, as the company cut prices in response to the competition, as my stock analysis indicates. Given the squeeze on margins, my stock analysis suggests that Whole Foods will have to come up with some innovative strategies to attract customers and stop them from venturing over to its rivals’ outlets.
Yet as my stock analysis indicates, this will not be easy as the market for natural and health food is crowded. You not only have the smaller, emerging players, but Whole Foods also needs to watch the established big-box stores, such as Wal-Mart Stores Inc. (NYSE/WMT) and Costco Wholesale Corporation (NASDAQ/COST).
If you are looking for a small-cap natural and health food play, take a look at Natural Grocers by Vitamin Cottage, Inc. (NYSE/NGVC). I have been following this company for years, watching it rise to a high of $44.60 prior to its subsequent collapse.
The stock has retrenched to the low $20.00 level, where I see a contrarian investment opportunity, based on my stock analysis. (I liked the stock in the $30.00 range—but I like it even more now!)
Chart courtesy of www.StockCharts.com
Natural Grocers by Vitamin Cottage operates across the country and sells more than 25,000 organic and all-natural products, comprising gluten-free products; organic produce certified by the United States Department of Agriculture (USDA); all-natural body care products; and a significant offering of vitamins, minerals, and herbs.
The results point to a company that is growing. Natural Grocers by Vitamin Cottage is estimated to report sales of nearly $523.9 million in fiscal 2014, up 21.6% year-over-year and rising another 21.8% to an estimated $638.3 million in fiscal 2015, according to Thomson Financial.
As my stock analysis indicates, these revenue growth metrics are more attractive compared to Whole Foods, where revenues are estimated to grow a smaller 11.2% and 13.2% in fiscal years 2014 and 2015, respectively.
Natural Grocers by Vitamin Cottage is estimated to make $0.61 per diluted share in fiscal 2014, followed by $0.78 per diluted share in fiscal 2015, according to Thomson Financial.
While the short-term could likely provide some volatility, I like Natural Grocers by Vitamin Cottage as a longer-term play, especially if it can deliver on its estimates, based on my stock analysis.