Whole Foods Inc. (WFMI): CEO Not Whole
7-12-07: We first wrote about WFMI back in September of 2006 when the stock was flying high in the $50 range. Our position was the stock was overvalued as it was trading with a high P/E given its growth rate. This morning we learned the CEO had some hand in pumping the stock. Instead of focusing his time and energy on leading his company, this guy spent his day posting on financial boards, at time pumping the company’s stock and attempted to suppress Wild Oats (OATS) stock so his company can basically buy it at a lower price. Hmm…isn’t that illegal?
Given Mr. Mackey is well compensated as CEO, one has to ask, why would someone in his position do such a dumb thing. Does this man actually think there is such a thing as anonymity on the Internet? I don’t care what you called yourself on the Internet, if someone really wants to find out who you are, it is not difficult. This is just another example of a greedy CEO that is overpaid and well…dumb. We are shaking our heads on this one.
Since the company’s stock is now trading at $38, is it a good buy? Ignoring this strange event, we believed WFMI is an excellent company. The fundamentals look good and Whole Foods is a major player in the organic foods market. This soap opera will likely lead to the firing of the CEO, but that is probably a good thing. The day he’s officially fired, the stock might receive a nice boost. With P/E of about 28, we believed significant risk has been eliminated. Obviously, the stock could still go lower since the chances of the Wild Oats merger going through is now in jeopardy (However, we doubt it). Nevertheless, we view this unusual event as a buying opportunity.
Comments
Is it really an uphill task for other retailers to start providing organic food in the scale WFMI is providing? I don’t think so. Even my local grocery has started providing organic foods just like what we get at whole foods. WFMI’s business strategy is easily replicable and the established retailers with their huge distribution capabilities could easily drive it out of business. Unless WFMI comes up with some new business strategy it’s just a downhill slope for them.
Posted by: Pradish Mathew | July 16, 2007 08:04 AM
hi,
i thought you were saying that mkt was in a correctional mode..but seems like mkt making new highs each and every day..any thoughts?thanks
Shawn
Posted by: shawn | July 16, 2007 08:52 AM
One can always makes a reasonable argument that a Wal-Mart or other larger chain can enter the organic market and eventually take market share away from WFMI. Definitely a reasonable logic.
In our opinion, WFMI has been able to brand itself as the "organic" market and people have come to associate organic with the brand. This is hard to achieve. They also target a different sector of the market. People who shop at WFMI is much more affluent and willing to pay more. We doubt this is the start of the end for WFMI. Organic appears to be catching on. If anything else, WFMI could be an acquisition target since the major chain would love to have a piece of this business. Thanks for you comment.
Posted by: ibooyah | July 16, 2007 09:41 AM
Hi Shawn,
Crazy isn't it? The market keep setting new records. If we look back at every major correction, it has always been after record highs. For this reason we are cautious when people are throwing money at the market. We could be wrong, but are not taking any chances and selling some at these levels.
Posted by: ibooyah | July 16, 2007 09:47 AM
hi you could be right..but at the same time..short interest is still very high at all time high.can't that push mkt very high with support of good earnings?
just a thought. thanks
Shawn
Posted by: shawn | July 17, 2007 07:45 AM