Whole Foods Market (WFM) hasn’t been a healthy choice for investors in 2014. Shares of the natural and organic grocery specialty chain are off by 36% in 2014 going into Wednesday’s earnings call, scheduled for after the market close.
WFM shares are trading near their 52-week low, having traded in a $36.09-$65.59 range during this same period. Shares closed at an all-time high of $64.83 on October 28, 2013 but have been in a steady downtrend ever since, with the upscale supermarket chain shedding nearly 44% of its market cap since.
So What Happened?
The poor performance of WFM shares over the past nine months is symptomatic of deeper problems. Once considered a niche chain, the company has recently set its sights on expansion. Their premium pricing, however, has been difficult for consumers to swallow who instead have sought out lower-cost products from competitors. Coupled with an expensive P/E ratio (24.35) and several disappointing earnings calls, and it suddenly it becomes much less difficult to explain the recent poor performance.
The stock has sold off the last 4 quarters on earnings, and for 6 of the past 8. WFM shares tend to be big movers, with an average shift of about 9.4% following earnings. The weekly at-the-money straddle that expires on Friday is implying a 9.4% move, or about $3.50.
Trade Ideas
With a chart so weak and the stock trading near the lows, I find it difficult to justify anything but a short position. Some counter trend traders might see this as an opportunity to buy ‘lottery tickets’ – cheap calls that could soar on even the slightest good news.
Buying the WFM Aug Weekly 34.5-33.5 Put spread for $0.30 is more aligned with my outlook, as I am risking $30 per 1 lot to potentially profit up to $70.
= = =
KeeneOnTheMarket.com is beta testing our own unusual options activity scanner OptionHacker, developed with Trade-Alert LLC using our proprietary filters. OptionHacker will be available to the public later this month.
Related Reading
Strange Times: The Unprecedented Bull Market in Stocks by John Voorheis
