Where Will Whole Foods Go Next?

With shares of Whole Foods (NASDAQ:WFM) trading around $57, is WFM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Whole Foods owns and operates a chain of natural and organic foods supermarkets. The company offers produce, grocery, meat and poultry, seafood, bakery, prepared foods and catering, coffee and tea, nutritional supplements, and vitamins. The company also provides specialty products, such as beer, wine, and cheese; body care products; educational products, such as books; floral items; and pet and household products. As of February 14, 2013, it operated approximately 340 stores in the United States, Canada, and the United Kingdom. Through its stores, Whole Foods provides products that are seeing increasing demand and will continue to do so for years to come.

Whole Foods reported results for the 12 week fourth quarter and 52 week fiscal year ended September 29, 2013. The prior-year periods included 13 and 53 weeks, respectively, as fiscal year 2012 contained an extra week. “We reported record fourth quarter operating results which contributed to the best fiscal year performance in our company’s 35 year history. For the last four years, we have increased our new store openings while producing improvements in operating margin and higher returns on invested capital, and we expect these trends to continue in fiscal year 2014,” said John Mackey, co-founder and co-chief executive officer of Whole Foods Market.

“We are dedicated to providing our communities with fresh, healthy, natural, and organic food, and with 94 leases in our development pipeline, we look forward to delivering accelerating new store growth for several years to come.”

T = Technicals on the Stock Chart Are Strong

Whole Foods stock has been trending higher over the last couple of years. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Whole Foods is trading between its rising key averages, which signal neutral  price action in the near-term.

WFM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Whole Foods options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Whole Foods Options

24.68%

0%

0%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Average

Average

January Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral  over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Whole Foods’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Whole Foods look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

16.67%

22.58%

18.75%

20.00%

Revenue Growth (Y-O-Y)

10.41%

12.14%

13.37%

13.71%

Earnings Reaction

N/A

-0.79%

10.12%

-9.70%

Whole Foods has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Whole Foods’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Whole Foods stock done relative to its peers, Kroger (NYSE:KR), Safeway (NYSE:SWY), Supervalu (NYSE:SVU), and sector?

Whole Foods

Kroger

Safeway

Supervalu

Sector

Year-to-Date Return

27.92%

61.72%

88.78%

178.90%

60.47%

Whole Foods has been a poor relative performer, year-to-date.

Conclusion

Whole Foods engages in essential food industry that provides highly demanded products to consumers in different countries. The company recently reported third quarter results which contributed to the best fiscal year performance in its 35 year history. The stock has seen amazing rise over the years and is recently trading near highs for the year. Over the last four quarters, earnings and revenue figures have increased, which has investors pleased with the company. Relative to its peers and sector, Whole Foods is a poor relative performer. Look for Whole Foods to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.