We closed this position on May 7, 2014. A copy of the associated Position Update report is here.
One of the Most Dangerous Stocks for July, Whole Foods has misleading earnings and a sky-high valuation. The same is true for all of our Most Dangerous Stocks. The truth is I love the Whole Foods Store in my neighborhood. But there is a difference between a good consumer product and a good stock. Whole Foods may produce a terrific product, but if they are (1) not able to profit from their product and (2) the stock’s valuation is too high (the current price in the high 30s “implies the company will grow revenues compounded annually at 20% for the next 11 years, while also improving their returns on invested capital by 25% over the same time) -the stock is Dangerous and you should avoid it. WFMI may be good for consumer, but it does not look good for shareholders.
Also of note, WFMI is also Chuck Jaffe’s Stupid Investment of the Week as per his recent article on MarketWatch.com: “Shares of this fancy grocery chain may spoil your portfolio“.
Here is a free copy of our report- Whole Foods Market (WFMI) – with details on how we identify misleading earnings, calculate NOPAT, NOPAT Margin, Invested Capital, Weighted Average Cost of Capital (WACC), Return on Invested Capital, Economic Earnings (aka “EVA”), Free Cash Flow, Growth Appreciation Period (aka Competitive Advantage Period) and a lot more.