Whole Foods (WFM) is making new 52 week and 3 1/2 year lows today. The stock is now down 42% from its 2015 highs, and down 50% from its all time highs made in late 2013. The chart from its financial crisis lows, to the 2013 highs was a work of art, in a very steady uptrend that amounted in 1750%. But the chart is clearly broken, and last month’s 11% decline following worse than expected results and guidance might have been the nail in the coffin as the uptrend is long gone, and there is no technical support for another 10% until $30, and then below that your guess is as good as mine. This is what the exit of the Triangle of Death looks like to the downside:
The company is expected to have its slowest sales growth (of about 9%) since 2009, and a good bit of its premium valuation has come out of the stock with it estimated current year P/E below 20 for the first time since early 2012.
The challenges to the company are obvious. Competition is coming at the first mover in organic foods from all directions. Not only from similar stores like Sprouts but more importantly the big boys like Costco (COST). In fact, according to a conference call earlier this year, COST surpassed WFM in organic products sold. The COST and WFM consumers are more overlapping demographically than you think and lower cost bulk organic purchases at places like Costco are a massive threat to WFM.
Obviously the stock is in breakdown mode. Playing for further weakness is definitely a press here but if that’s your bag put spreads in November like the 32/27 probably make the most sense so that if the stock bounces you’ve at least defined your risk. Playing for a bounce is tough too but upside call calendars around the 35 or 36 level probably make the most sense. The Sept/Jan 35 call calendar is about 1.25. The Sept sale isn’t great but if it does work out it could continue to be rolled and could turn into a great stock alternative into year end.