Seeking Alpha: Investors Paying A Steep Price For United Natural Foods' Growth

I get that investors are willing to pay up for dependable growth stories, not to mention legitimate plays on the underlying shift toward organic and natural foods. To that end, United Natural Foods (UNFI) is definitely a logical picks-and-shovels play on the trend. As the largest organic/natural foods distributor in the country, UNFI is certainly well-positioned to benefit from same-store growth at dedicated retailers like Whole Foods (WFM), Natural Grocers (NGVC), and Sprouts (SFM), as well as conventional supermarkets building their organic/natural assortments.

The fly in the ointment is valuation. Organic/natural food distribution may be a much higher-growth opportunity within distribution, but it's still distribution and companies like SUPERVALU (SVU), SpartanNash (SPTN), and Sysco (SYY) (which is admittedly a different sort of distribution) have amply demonstrated that margins in this business just aren't very robust. With that in mind, I believe that United Natural Foods is overpriced on both a discounted cash flow and EBITDA basis. I don't expect the Street to suddenly stop liking these shares just because they're expensive, but the risk-reward balance at these levels skews too far into "risk" to make me want to step up as a buyer.

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Investors Paying A Steep Price For United Natural Foods' Growth