Shares of North Carolina-based upscale grocery chain The Fresh Market (NASDAQ:
TFM ) popped almost 11% Wednesday after a strong earnings report and a positive
profit outlook . Should you add it to your portfolio? Results for The Fresh
Markets second quarter were ahead of expectations. Its net income of $10.5
million was 52% above the same quarter in 2010 and its EPS of $0.22 beat
expectations by a penny. Meanwhile, its revenues were up 13.6% to $259.5 million
. Is this quarterly performance enough to get you to invest? No. But here is one
reason to consider it: Consistently good earnings reports. The Fresh Market has
been able beat analysts' expectations in each of its past three quarters .
Three reasons to hesitate: Expensive stock. The Fresh Market 's
price/earnings-to-growth ratio of 4.32 (where a PEG of 1.0 is considered fairly
priced) means its stock price is very expensive. It currently has a P/E of 80.4,
and its earnings per share are expected to grow 18.6% to $1.24 in 2012 .
Increasing sales and profits but cash-poor balance sheet. The Fresh Market has
been increasing sales and profits. Its revenue has grown at a 20.6% annual rate,
from $460 million (2006) to $974 million (2010), while its net income has
increased at a 4.7% annual rate, from $20 million (2006) to $24 million (2010)
yielding a slim 2% net profit margin. Its debt has fallen from $130 million
(2008) to $82 million (2010), while its cash declined from $6 million (2008) to
$4 million (2010). Out-earning its cost of capital but getting worse. The Fresh
Market is earning
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