When most people think of a successful company, they don’t think the stock of that company will drop. According to a UBS analyst however, success can lead to such a thing.
UBS has just initiated coverage of Whole Foods, an American supermarket chain exclusively featuring foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats.
The firm has given the stock a “sell” rating and has cited increased competition in the organic and natural food space.
“While Whole Foods has done so much to inspire, create, and revolutionize the market for natural and organic, we now see it being the victim of its own success,” analyst Michael Lasser said in a note on Thursday.
“We don’t think the shares have properly reflected that the days of the company generating double-digit sales and EPS growth are likely over, at least for the foreseeable future.”
According to Lasser, 42 percent of Whole Foods stores are within a five-minute drive of a Trader Joe’s, and 12 percent are within a short drive to Sprout Farmer’s Market.
“WFM has started to lose pricing power. Our Los Angeles-area pricing study of 50 items suggests WFM’s prices are ~13% more expensive than Ralph’s (Kroger) & Sprouts, on average,” he wrote.
Investors were not too thrilled with Lasser’s opinon as the stock dropped 2% alone in pre-market trading on Thursday.
Disclaimer: We have no position in Whole Foods Market, Inc. (NASDAQ: WFM) and have not been compensated for this article.