- There’s no doubt grocery stores benefited from COVID-19 and the resulting changes in consumer behavior.
- With future expansion plans, a strong brand, and a competitive position in a niche market, investors would be mistaken to move away from this growing grocer.
- Despite the growth tailwinds and leading profitability, SFM now trades at a price equal to its three-year average economic book value, the lowest in the history of our model.
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There’s no doubt grocery stores benefited from COVID-19 and the resulting changes in consumer behavior. Last month industry sales were up 10% year-over-year (YoY). However, with the recent news of an effective vaccine for COVID-19, investors are cycling their money away from many stocks that have outperformed over the past several months. With future expansion plans, a strong brand, and a competitive position in a niche market, investors would be mistaken to move away from this growing grocer.
Sprouts Farmers Market, Inc. (SFM) is this week’s Long Idea.
This stock offers excellent risk/reward based on:
- Strong growth opportunities for same stores and new stores
- Sharp focus on its target customers and expanding margins
- Successful execution of its e-commerce strategy
- “Fresh, healthy, and natural” offering that conventional grocers struggle to replicate
- Stock trading as if profits will permanently decline by 20% from TTM levels
Gaining Market Share in a Competitive Industry
In spite of ample competition, Sprouts has grown revenue faster than the industry. The firm’s market share improved from just 0.3% total U.S. grocery sales in 2012 to 0.8% TTM.
