The Fresh Market Is Almost 26% Off – Storewide

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Aug 23, 2015
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Quarterly Earnings Jumped 50% YoY, TFM Shares Cratered

Huge Market Sell-offs Create Bargains

High-end food store The Fresh Market (TFM, Financial) came public in November 2010 at $22. The Fresh Market earned $0.49 per share in 2010 before shifting to a January fiscal year after going public.

A secondary offering of 11.9 million additonal shares was released in April 2011 at $42.50. The Fresh Market shares shot up as high as $65.70 during 2012, a year when the firm posted EPS of $1.33.

The company reported second quarter FY 2015 earnings (ends Jan. 30, 2016) of $0.36 on Friday, up 50% from a year earlier but four cents below consensus estimates. Boom. In Friday's shoot first, aim later, brutal market environment, the stock was crushed by $6.90 per share closing down 25.95% at $19.69.

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Guidance for the full year was reduced by a dime to $1.60, which would still represent an all-time high for The Fresh Market. Trading volume was an astounding 14.3 times normal daily activity. The stock closed just 18 cents above its newly minted post-IPO nadir.

The Fresh Market’s balance sheet is as healthy as the foods they sell. As of April 26, they held over $89 million in cash against total debt of just $33 million. There is no defined pension plan. There are no preferred shares. Debt service expenses are minimal.

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The Fresh Market had initially been a market darling. Tradable lows occurred in 2011, 2013 and 2014 at P/Es ranging from 22x to 29x. Peak share prices came at P/Es of 32x – 49x. In the four-year period from 2011 through 2014, The Fresh Market averaged 34x earnings and typically sold for greater than 13 times book value.

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Last week’s close made the stock available at its lowest valuation ever. The Fresh Market is now offered at 12.3x this year’s already tempered estimate and just 2.1x its expected fiscal year-end book value.

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The Fresh Market was clearly overpriced in the $40 to $65 range. At under 20 bucks, though, the shares are worth considering. They’ve fetched at least double the current quote during parts of each of the past six calendar years, including 2015 YTD.

Since coming public in late 2010, EPS have risen by about 226%, but the stock now sells for 10.5% less than the origina IPO price and a better than 53% discount to the secondary offering price.

Nobody can say for sure we’ve seen the final bottom, but The Fresh Market is now looking quite cheap.

There were a number of insider buys from late March through mid-July of 2014 when the stock was in the low $30s. Within months, The Fresh Market proceeded to rally back to $42.12.

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Traders putting on positions in the $19s are likely to see a nice rebound. Long-term investors might take comfort in knowing that industry leader Whole Foods Markets (WFM, Financial) closed on Aug. 21 at $31.64, down from $57.57. Its FY 2015 (ends Sept. 26) estimate, at $1.67 per share, is less than 5% above The Fresh Market's, yet Whole Foods' quote is 60% higher.

Last week’s decline took everything lower, offering value-seekers a great chance to get in at hugely marked down price points.

A return to a somewhat more typical P/E on its FY 2016 estimate could easily support sending The Fresh Market back into the $30 to $40 zone.