Whole Foods Market (WFM) Quarterly Valuation


Whole Foods Market is easy to become enamored with as an investor, especially if one enjoys shopping there as much as I do.  The food is very high quality and the customer service is outstanding, but investors need to be concerned about how the intrinsic value of the company compares to the market price.  After all, it is very important to be sure not to pay more for a stock than it is worth.  Intelligent Investors also must consider potential investments by comparing them against companies in other industries to find the greatest opportunity for profit.  By using a ModernGraham analysis, one can maintain a systematic analysis across companies and even industries to easily compare one potential investment’s risk level and opportunity for value against another potential investment.  What follows is a specific look at how Whole Foods Market fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Whole Foods Market, Inc. (Whole Foods Market) is a natural and organic foods supermarkets. As of September 25, 2011, Whole Foods Market operated 311 stores in the United States, Canada, and the United Kingdom. The Company’s stores average 38,000 square feet in size and 10 years in age, and are supported by its Austin headquarters, regional offices, distribution centers, bakehouse facilities, commissary kitchens, seafood-processing facilities, meat and produce procurement centers, and a specialty coffee, tea procurement and roasting operation. As of September 25, 2011, it operated 311 stores, of which 299 stores operated in 38 United States and the District of Columbia; seven stores in Canada; and five stores in the United Kingdom. It owns 12 stores, two distribution facilities and land for one store in development, including the adjacent property. It also owns a building on leased land, which is leased to third parties, and has one store in development on leased land.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $43.94
MG Opinion Overvalued
Value Based on 3% Growth $16.55
Value Based on 0% Growth $9.70
Market Implied Growth Rate 18.10%
Net Current Asset Value (NCAV) $0.86
PEmg 44.69
Current Ratio 1.82
PB Ratio 4.90

Balance Sheet – 9/30/2013

Current Assets $1,980,000,000
Current Liabilities $1,088,000,000
Total Debt $26,000,000
Total Assets $5,538,000,000
Intangible Assets $744,000,000
Total Liabilities $1,660,000,000
Outstanding Shares 372,400,000

Earnings Per Share

2013 $1.47
2012 $1.26
2011 $0.97
2010 $0.70
2009 $0.42
2008 $0.41
2007 $0.64
2006 $0.70
2005 $0.49
2004 $0.51

Earnings Per Share – ModernGraham 

2013 $1.14
2012 $0.90
2011 $0.69
2010 $0.56
2009 $0.50
2008 $0.55


Whole Foods is an excellent company that must be on the watch list of all Enterprising Investors.  The company may not qualify for the Defensive Investor, due to a current ratio that isn’t quite high enough, a lack of a solid dividend history, and high PEmg and PB ratios, but the company passes the requirements of the Enterprising Investor with a perfect score.  Enterprising Investors wishing to follow Benjamin Graham’s value investing methods should pay close attention to Whole Foods while comparing it to other companies that pass the ModernGraham requirements.  From a valuation perspective, the company appears to be trading at a slight premium.  Growth has taken the company’s EPSmg (normalized earnings) from $0.50 in 2009 to $1.14 in 2013, a solid level of growth; however, the market is currently pricing the company at a level that surpasses the intrinsic value calculated by the ModernGraham valuation model.  

What do you think?  What value would you put on Whole Foods Market (WFM)?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Whole Foods Market (WFM) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.





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