In addition, Whole Foods Market, Inc. (NASDAQ:WFM) has only just started its international growth campaign with less than 15 stores in Canada and the U.K.
As the marketplace realizes the true scale of this opportunity, it could be a catalyst for a higher share price.
Financials
Whole Food’s financials are remarkably strong. The business is highly scaleable allowing profits to grow much faster than revenues.
Even more impressive, the company earns six cents in free cash flow for every dollar generated in revenue. That’s the best in the grocery business and means the company has ample funds for shareholder friendly activities like dividends and buybacks.
Plus, there’s almost no long term debt on the balance sheet, which gives Whole Foods the financial flexibility needed to execute its growth strategy.
Best of breed
Stingy investors may prefer a traditional retailer like Safeway Inc. (NYSE:SWY) which trades at eight times earnings and sports a 3.5% yield.
Why is that a mistake? Growth.
Total grocery spending in North America is stagnant. Where are organic sales coming from? Straight out of the pockets of traditional supermarkets.
In the past five years Safeway Inc. (NYSE:SWY) have grown revenues at an anemic 2.5% annual pace. Combined with relentless price competition from big-box retailers like Costco Wholesale Corporation (NASDAQ:COST) and Wal-Mart Stores, Inc. (NYSE:WMT), Safeway has little ability to grow earnings.
How about against organic rival The Fresh Market Inc (NASDAQ:TFM) ?
At first glance The Fresh Market Inc (NASDAQ:TFM) looks like a better bet. The stock trades at a cheaper 35 times earnings with the company planing to triple its store count to 500 locations across the Southeast.
But the problem here could be in the execution. In the past year, several key executives have resigned which calls into question management’s ability to execute on its expansion strategy.
In addition, the company cut its 2013 EPS guidance to $1.55. That’s much lower than the $1.69 the street was looking for.
With Whole Foods Market, Inc. (NASDAQ:WFM), I don’t have to worry about these problems.
The company has a nationally recognized brand that can expand into any market it chooses. Whole Foods Market, Inc. (NASDAQ:WFM)’s size and scale also allows it to withstand competition better than smaller players.
For these reasons it’s worth paying a premium for best of breed.
Foolish bottom line
Whole Foods is a company that combines turbo charged growth with strong pricing power. And it’s just getting warmed up.
The article 5 Reasons to Buy This Retailer originally appeared on Fool.com and is written by Robert Baillieul.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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