82 The Business of Value InvestingIt ’ s the largest organic and natural foods grocer in the United
States. The company sells the highest - quality foods, such as grass -
fed beef, organic fruits and vegetables, and chemical - free health
and beauty care products. Its products command premium prices,
but consumers pay it knowing that are getting the highest - quality
foods. We don ’ t have one yet in my hometown of Athens, Georgia,
but if I ’ m in a city with one, I usually stop by. Even if I don ’ t need
anything, I like to stop in to check out the store. I am constantly
impressed with the merchandising, the abundant variety of fresh
produce and meats, and the impeccable cleanliness. Among retail
grocers, Whole Foods is unique.
For years my favorable views on Whole Foods have been shared
by Mr. Market. The stock has always traded a premium price; sales
and earnings growth climbed rapidly each year. So while I loved
the company and followed the business each year, it was easy for
me to sit back and wait for a better entry point into the investment.
I understood the business very well and while I knew that its long -
term prospects were strong, no business can continue to grow at
such a rapid pace forever. Eventually the business would experi-
ence a temporary growth rate plateau and the market would react
quickly. Like the Google example at the beginning of the chapter,
Whole Foods was a fantastic business but not a fantastic investment
at $ 65 a share with a P/E of over 32. (Note: In late 2008 with the
economy in a recession, Whole Foods has been hit hard as consum-
ers cut back on spending, and sales growth has virtually stalled. As
a result, shares now trade around $ 10 and a more digestible P/E of- You can rest assured I am very excited at these levels.)
Because I know Whole Foods both as an investor and a cus-
tomer, I have a very clear understanding of both the benefi ts and
the risks of this business. As such, I am able to value the business
and handicap my odds of permanent capital loss with greater accu-
racy and greater confi dence.
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