Whole Foods Markets (WFM)

[DewDiligence]

There’s a danger in unduly extrapolating from the small dataset known from personal experience. I used to work with a portfolio manager who was convinced WFM had topped out at $15 (split-adjusted) in late 2009/early 2010. Why? Because his local WFM store in Connecticut was sloppy with inventory and service, which made him convinced that the business model was broken.

Today, no one doubts that competition for organic produce has increased relative to five years ago. But this doesn’t mean WFM has lost its appeal or that the firm won’t continue growing its store base using internally generated cash flow.

Indeed, if WFM increases from 422 stores today to 600 stores in a few years as the company expects to do, the EPS will grow substantially and the share price will almost certainly be higher than it is today, even if the P/E ratio declines.

I’ve exploited the current downturn to accumulate shares, adding to those I acquired in the late-2014 sell-off and those I bought several years ago at a scandalously low cost basis. I don’t plan on selling any shares unless there is concrete evidence that the company’s ability to run profitable stores and to expand using internally-generated cash flow is no longer working. Regards, Dew