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A Look at Sprouts’ Stock Market Performance and Valuations

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Stock market performance

Sprouts Farmers Market (SFM) was the most unrewarded company in the stock market in 2015. Its stock value declined by 22% during the year despite an impressive financial performance. However, 2016 has been a much better year so far.

SFM has gained around 5.2% YTD (year-to-date) as of April 28, 2016. Its performance was better than Kroger (KR) and Whole Foods Market (WFM), which lost more than 11% YTD this year. The Fresh Market (TFM) has delivered the best performance, gaining 22% YTD.

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Wall Street looks positive on SFM

Wall Street is positive on Sprouts Farmers Market (SFM) and sees a potential for a further stock price increase from its current level of $28.16. The target price for SFM is $30.55, which indicates an upside of around 9.5%.

Of the 22 analysts who have rated Sprouts Farmers Market, 13 have recommended a “buy” and nine have recommended a “hold.” None of the analysts have a “sell” rating on the stock.

Valuations

Trading at 29x the next-12-month EPS (earnings per share) of $0.97, Sprouts Farmers Market continues to be the most expensive supermarket. In comparison, Kroger (KR), The Fresh Market (TFM), Whole Foods Market (WFM), and SuperValu (SVU) are currently trading at 16.2x, 18.9x, 19.0x, and 7.8x, respectively.

Although Sprouts Farmers Market is trading at a premium to other supermarkets, it deserves to do so based on its past performance and future outlook. As we saw in Parts 2 and 3 of this series, the company has outshined all of its peers in terms of top-line growth as well as its margins.

Sprouts Farmers Market’s earnings growth over the next 12 months (or NTM) is also the best in the peer group. The company is expected to grow its NTM EPS by 14% as compared to -6.7%, -4.9%, -1.2%, and 8.2% NTM EPS growth of SVU, WFM, TFM, and KR, respectively.

Investors looking for exposure to Sprouts Farmers Market (SFM) through ETFs can invest in the Guggenheim S&P MidCap 400 Pure Growth ETF (RFG). SFM has a weight of ~1.8% in RFG.

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