Up 24% Since October, Is Sprouts Farmers Market Stock A Sell?

SFM: Sprouts Farmers Market logo
SFM
Sprouts Farmers Market

Sprouts Farmers Market (NASDAQ: SFM), a grocer offering a wide selection of natural and organic foods, has declined 5% over the last five days (one week) and currently stands near $28. It should be noted that the broader S&P500 returned a 4% decline during the same period. The company saw its stock decline on the concerns of rising rates and the broader market sell-off. 

SFM reported mixed results in its Q3 2021 earnings report in November, with strong growth in quarterly earnings, but weaker sales performance than expected. However, the outlook for 2022 looks much better, with the company planning to open 25-30 stores, in terms of store unit growth. Notably, the new stores are expected to have a much smaller footprint of 23,000 square feet vs. 30,000 square feet, which should provide better unit economics. This is because they will require lower Capex, decreased operating costs, and reduced occupancy costs. The hope is that they will have similar sales, which will provide a meaningful boost to sales per square foot. Meanwhile, though the company is forecasting flat comps for FY 2022, it should see a meaningful boost in revenue given that Sprouts should average closer to 385 stores in FY 2022 as compared to an average of 366 in FY 2021.

The company’s stock is up 24% since October end, this compares to a 6% decline in the S&P stock. Now, is SFM stock poised to grow further in the short term? Based on our machine learning analysis of trends in the stock price over the last ten years, there is only a 47% chance of a rise in SFM stock over the next month (twenty-one trading days). See our analysis on SFM’s Stock Chance Of Rise for more details.

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If you are considering SFM stock as an investment option over a longer time frame, you can explore our forecast for SFM’s Valuation dashboard. We estimate the company’s valuation to be around $29 per share which is almost 4% above the current market price. This represents a P/EBITDA multiple of 6.6 for the company based on our forecast for SFM’s EBITDA for the current fiscal year.

Calculation of ‘Event Probability’ and ‘Chance of rising’ using last 10 year data

[1] Returns of -5.1% or lower over five-day period in 236 times out of 2132 (11%); Stock rose in the next five days in 122 of these 236 instances (52%)

[2] Returns of -3.7% or lower over ten-day period in 542 times out of 2127 (25%); Stock rose in the next ten days in 268 of these 542 instances (49%)

[3] Returns of -2.9% or lower over a twenty-one-day period in 853 times out of 2116 (40%); Stock rose in the next twenty-one days in 404 of these 853 instances (47%)

Also, Sprouts Farmers Market Peers summarizes how the company fares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SFM Return -7% -7% 46%
 S&P 500 Return -9% -9% 94%
 Trefis MS Portfolio Return -14% -14% 240%

[1] Month-to-date and year-to-date as of 1/27/2022
[2] Cumulative total returns since the end of 2016

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