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Sprouts Receives a Cold Response from Investors Post-4Q17

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Stock market reaction to 4Q17

Despite a strong performance in 4Q17 and upbeat guidance for 2018, Sprouts Farmers Market (SFM) stock plunged 2.3% after the company’s earnings release on February 22, 2018.

SFM’s share price fell another 1.6% on the next trading day. The market had probably been looking for a more significant earnings and revenue beat—similar to what SFM achieved in the previous quarter.

The value-oriented natural/organic food retailer is now sitting at a YTD (year-to-date) profit of 3%. It soared close to 30% throughout the year. In comparison, grocery players Kroger (KR) and SuperValu (SVU) saw falls of 20% and 34%, respectively, during the year. In 2018, the two companies are again sitting in the red. While Kroger has fallen a marginal 0.1%, SuperValu has fallen more than 35% to date.

Big-box retailers Target (TGT) and Costco (COST) have done better. The two companies have risen 16% and 2% to date, respectively. Retail mammoth Walmart (WMT) has, however, fallen 6% in the year, in part due to its recent quarterly results, which failed to impress investors.

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Valuations

Sprouts Farmers is currently trading at a one-year forward earnings multiple of 20x, close to the lower end of its 52-week PE (price-to-earnings multiple) range of 18x–27x.

The company is trading at a premium to supermarkets Kroger and SuperValu, which are valued at 12.8x and 5x, respectively. However, it has a better earnings potential than these two companies. Its EPS (earnings per share) are expected to rise 24% over the next 12 months. In comparison, Kroger’s and SVU’s EPS are expected to rise 11% and 6%, respectively, over the next 12 months.

Those looking to invest in SFM through ETFs can choose to invest in the SPDR S&P Retail ETF (XRT). SFM has a weight of ~1.2% in XRT.

Read the next section to learn about Wall Street’s take on SFM after its 4Q17 results.

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