I'm always skeptical when it comes to market participants
declaring a new paradigm.
The dot-com bubble is a prime example, but there are others
Whole Foods Market (
Have you ever heard anything more ludicrous than the promises
of those early believers? Whole Foods was going to change the way
groceries were bought and sold.
Consumers craving a natural approach to food would ensure
parabolic growth for as long and far as the eye could see.
Perhaps those folks need to eat more organic carrots, because
it's not happening.
Ah, but they had you going for a fair while, didn't they?
Right up until last fall, this was a stock that could do no
wrong. Its shares peaked at $65 per share trading at a premium
Then the bubble popped and the fun ended.
The woe continues Thursday. Shares are in a free-fall after
the company's earnings report following Wednesday 's close. Whole
Foods said it made 42 cents per share in the quarter ending Dec.
31, 2013. That was 2 cents per share below forecasts. Revenues of
$4.24 billion were also below the expected $4.29 billion. In
addition, Whole Foods lowered the top end of its revenue
guidance. The range on earnings for the full year was also
That was enough to keep the selling pressure on this
you need to deliver a pristine report or look out below. That's
what's happening here to the tune of about 7% on the
Are you really surprised by the move?
We are talking about groceries here. I couldn't care less if
the food came from heaven itself. From a business perspective,
you are dealing with a razor-thin margin business - period.
Organic or not, it is still just groceries.
It's taken much longer for this bubble to pop, but that's how
these things tend to go.
Competition for the grocery dollar is fierce. The idea that
Whole Foods' ability to charge higher prices is simply not
sustainable. That is especially true in this very challenging
economic environment for consumers.
Analysts expect Whole Foods to grow profits by 17% from the
current fiscal year to the next. At current prices including the
7% decline on Thursday, shares trade for 31 times current fiscal
year estimated earnings.
Love this stock all you want, but the numbers ultimately
matter. Valuation decompression here is likely to continue until
this thing is more reasonably priced relative to reality.
I'd sell this stock and look for opportunity elsewhere.
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