Whole Foods Market, Inc. (WFM) Is Tier 1

Whole Foods is also not immune to global economic slowdowns. A pullback in consumer spending would hurt sales of the company’s premium-priced food and beverages as customers would likely cut back on their purchases or trade down to lower-cost competitors. However, markets operate in cycles and a downturn of this nature would likely be followed by an economic recovery. So I will likely view these types of pullbacks as opportunities to add to Tier 1’s position in Whole Foods, rather than a reason to sell.

Valuation
Whole Foods is not an inexpensive stock, but great growth companies rarely are. The company is trading at 31 times analysts’ earnings estimates for 2013, well above analysts’ expectations for 17% annualized growth in the next five years. I typically like to buy when those two metrics are more closely aligned, but I contend that Whole Foods is not as expensive as it first appears. I believe Whole Foods deserves a premium multiple due to the power of its brand, excellent leadership, and tremendous market opportunity. In fact, my discounted cash flow model returns a value of more than $105 per share, and with years of steady growth ahead as it marches toward its 1,000-store goal (it’s at 344 stores now), Whole Foods should provide healthy returns to shareholders for years, and possibly even decades, to come.

The Foolish bottom line
Whole Foods is an elite business that is well positioned to profit from the healthier-eating megatrend. Today, investors have the opportunity to buy shares in this outstanding founder-led growth company and profit handsomely as it fulfills its long-range potential. And so 24 hours after this article is published, I will be buying shares in the Tier 1 Real-Money Portfolio.

The article Whole Foods Is Tier 1 originally appeared on Fool.com.

Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool’s Stock Advisor and Supernova premium service teams. You can connect with him on Twitter @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Whole Foods Market. The Motley Fool owns shares of Berkshire Hathaway and Whole Foods Market.

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