Some people have called this stock a “cult stock” and have compared it to such fads as Crocs and Heely’s but the company’s consistent growth and management prowess have proven otherwise. Unlike the two has-beens mentioned above, this company boasts a wealthy, loyal clientele that will likley continue buying its products in almost any economic environment. This is one reason the stock is up 70% year-to-date and is trading at a new 52-week high. If you haven’t guessed by now, the company is Whole Foods Markets (WFMI).
Tasty Quarter
In its quarter ending in September, the company earned 33 cents per share, beating the consensus estimate by a nickel. Sales also beat analyst views and rose 15% from a year ago. As always investors focused on what management had to say about the future and the company didn’t disappoint. The company lifted its full-year outlook to $1.71, which is a dime higher than what analysts had expected just a week ago. Investors cheered by bidding up the stock by 15%.
So how did the company do it? Whole Foods acquired Wild Oats Markets a while back and that proved to be a shrewd move. Those stores contributed a healthy amount to growth in the quarter. Organic food consumption is a trend that hasn’t petered out and likely won’t anytime soon. The buyers of these products are generally wealthier than the average population and are less likely to give up buying when times get tough.
This isn’t to say that the company wasn’t affected by the Great Recession. Whole Food suspended its dividend in July 2008 when times were getting tough in order to save money. The CEO John Mackey mentioned that reinstating the dividend is a possibility due to the hearty amounts of free cash flow the company is throwing off. This has to be music to investors’ ears. Surely this statement alone accounted for a portion of Thursday’s 15% gain.
Too Late?
I don’t think it’s too late to climb aboard the stock. It is still a turnaround in the making, even though it is near a new 52-week high. The prospect of a dividend on the horizon will also keep income-oriented investors interested as well. The stock isn’t dirt cheap, but then again quality stocks like this are never dirt cheap. It is trading at about 25x next year’s estimates, but I expect those numbers to be raised in the near future. I think this stock could hit $55-$60 over the next year.
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