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Which Supermarket Stocks Are on Markdown?

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Mar. 16 2016, Updated 12:04 a.m. ET

Which is the most expensive supermarket?

Sprouts Farmers Market (SFM) is currently trading at a one-year forward PE (price-to-earnings) multiple of 29x, based on EPS (earnings per share) of $0.98 for the next 12 months. It is currently the most expensive of the five grocery retailers covered in this series. Whole Foods Market (WFM) and Kroger (KR) follow Sprouts Farmers Market and are trading at 20x and 18x based on EPS of $1.55 and $2.17, respectively, for the next 12 months.

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After recently touching its lowest PE multiple in January 2016, The Fresh Market (TFM) is now trading at 14.2x based on EPS of $1.62 for the next 12 months. Supervalu, at 7x, is currently trading near the lower end of its PE multiple range of 5.6x–13.2x. (All the above figures are based on prices on February 29, 2016.)

Is SFM really the most expensive supermarket stock?

While SFM is the most expensive company, it clearly has the most solid expected earnings growth. SFM’s EPS growth over the next 12 months stands at 14% as compared to 7% for Kroger, -1% for TFM, -4% for SVU, and -5% for WFM.

SFM has delivered solid growth despite heated competition in the organic food space. The company’s top line grew by a CAGR (compound annual growth rate) of 47% between fiscal 2010 and fiscal 2015. In comparison, Kroger (KR), Whole Foods Market (WFM), and The Fresh Market (TFM) grew CAGRs of 7%, 11%, and 15%, respectively, over the past five fiscal years. SuperValu (SVU), on the other hand, registered a 15.2% decline in total sales during the same period, as the company sold off a part of its retail business to reduce its debt burden and add cash to its balance sheet.

SuperValu (SVU), Kroger (KR), Whole Foods Market (WFM), The Fresh Market (TFM), and Sprouts Farmers Market (SFM) together constitute ~5% of the SPDR S&P Retail ETF (XRT).

Move on to the next part of this series to read about the financial performance of supermarket peers.

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