That headline elicits visions of drones positioned over grocery stores delivering avocados to suburban “McMansions.” The $13 billion deal announced earlier today has sent both Amazon and Whole Foods stock soaring. However, conversely it has left many others in the grocery store and those in their supply chain as well as other major full-line retailers in disarray and with tumbling share prices.
Make no mistake about it. This is a game changer for Price Chopper along with all other grocers. It’s a also a game changer for Walmart and for Costco and all big box stores. As this deal was announced, we own shares in Amazon but virtually none in Whole Foods. While we think that this makes long term sense for Amazon it is important to note that the incredibly high valuation of Amazon stock is what has made this possible. Amazon has a 10 year annual return of 35.8%, however to go along with an average annual drawdown of 36% over the last 20 years. Amazon is a growth stock star but it is not without execution risk or without share price volatility. It is also important to recognize this deal moves Amazon into an industry that sports low margins and also one where it lacks experience.
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