Is this Small Cap Supermarket Stock the Next Whole Foods Market (WFM)?

A closer look at small cap natural and organic supermarket stock Natural Grocers by Vitamin Cottage (NGVC) verses Whole Foods Market (WFM) - its large cap peer.

Jan 31, 2013 6:06:02 AM PST | 389 View(s) | No Comment(s) - Post a Comment Rating

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StockHQ:

WFM
$103.77 +$1.73 +1.70%
NGVC
$29.50 -$0.01 -0.03%

Investors looking into cashing in on the natural and organic food craze may have overlooked small cap natural and organic supermarket stock Natural Grocers by Vitamin Cottage (NYSE: NGVC) in favor of its large cap supermarket peer Whole Foods Market (NASDAQ: WFM). But could small cap Natural Grocers by Vitamin Cottage, which is scheduled to report earnings after the market closes today, actually be a better deal than Whole Foods Market for investors?

Natural Grocers by Vitamin Cottage was founded in 1955 by Margaret and Philip Isely, who are the parents of the current leadership team. The pair started the business by going door-to-door in Golden, Colorado, to sell whole-grain bread and to share nutrition information. Today, Natural Grocers by Vitamin Cottage has over 60 stores in 12 states that sell only natural and organic products like USDA-certified organic produce, meats from animals raised naturally and groceries free of artificial colors, flavors, sweeteners and hydrogenated oils. In addition, there is an extensive dietary supplement and body care department along with a big selection of gluten-free and other special dietary need products.

Late last July, Natural Grocers by Vitamin Cottage debuted in an IPO priced at $15 a share to raise $107 million (NGVC’s share of the proceeds was $54.4 million) with shares closing at $17.86 on the first day of trading. However, members of the Isely family still control with more than 50% of the company’s shares – meaning outside investors are investing in a family controlled business where they have very little say in how its managed.

Nevertheless, Revenues have grown at a double-digit pace for three years, coming in at $336,385k (fiscal 2012), $264,544k (fiscal 2011) and $226,910k (fiscal 2010) for the past three fiscal years ending September 29th while net income has come in at $6,649k (fiscal 2012), $3,504k (fiscal 2010) and $4,408k (fiscal 2010) – so one can make the argument that so far, the family running the company has known what its doing. Its also clear that at just 60 stores or so, Natural Grocers by Vitamin Cottage has plenty of room left to grow in mountain and plains states.

However, Natural Grocers by Vitamin Cottage has a trailing P/E of 68.42 and a forward P/E of 33.87, meaning its not exactly a bargain, and it pays no dividend. For reference, large cap Whole Foods Market has a trailing P/E of 37.80 and a forward P/E of 27.77 along with a forward dividend of $0.80 for a 0.80% dividend yield. Whole Foods Market also fell 0.39% on Wednesday to $95.25 (WFM has a 52 week trading range of $73.53 to $101.86 a share) for a market cap of $17.67 billion, but WFM is up 27.2% over the past year and up 153.7% over the past five years.

Otherwise, Natural Grocers by Vitamin Cottage fell 2.4% on Wednesday to $20.32 (NGVC has a 52 week trading range of $17.20 to $25.00 a share) for a market cap of $454.60 million.

Chart forNatural Grocers by Vitamin Cottage, Inc. (NGVC)

The Bottom Line. For me, I don’t like the taste of either small cap Natural Grocers by Vitamin Cottage’s or large cap Whole Foods Market’s respective P/E ratios as neither are clearly bargains. Then again, neither is anything you see on the shelves of any natural and organic supermarket, but the real deal killer for me is the fact that Natural Grocers by Vitamin Cottage is family controlled where me or you or any activist investor have no say in how its run.

John Udovich is a paid contributor of the SmallCap Network. John Udovich's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.