I initially scooped up shares of better-for-you, attribute-driven grocer Sprouts Farmers Market (NASDAQ: SFM) for round $35 in 2023, and thought I used to be properly on my option to experiencing my subsequent multibagger funding. And certainly, the inventory quintupled in worth over the subsequent two years. Nonetheless, since then, it has dropped by 55% from its peak.
I do not inform this story as some “woe is me” story, however reasonably to focus on that even the easiest of progress shares — resembling a grocer like Sprouts — will face main pullbacks sooner or later. Extra importantly, although, these sell-offs can typically show to be glorious buy-the-dip alternatives, supplied the corporate’s underlying operations and progress prospects stay intact.
I consider that’s the case for Sprouts Farmers Market.
The principle purpose I am joyful to maintain including to my successful place in Sprouts Farmers Market is the corporate’s distinctive array of choices. Its objects are usually extra health-focused than these discovered at chains like Kroger or Walmart, however extra affordably priced than these bought at premium chains like Complete Meals.
Sprouts focuses on promoting groceries with particular attributes that some prospects are in search of — natural, responsibly sourced, domestically sourced, kosher, vegan, non-GMO, gluten-free, and extra. With this area of interest focus, Sprouts goals to supply a “farmers market” expertise at scale.
Listed here are 4 key the reason why Sprouts Farmers Market appears like a no brainer inventory to purchase on the dip.
With 464 shops throughout 24 states, Sprouts is steadily marching towards its objective of turning into a nationwide chain. It added 37 shops in 2025 and hopes to return to 10% annualized progress in retailer depend over the medium time period.
With 140 new retailer areas already accredited in its pipeline — and a formidable observe file of progress — I am not betting in opposition to the corporate.
Past its give attention to rising its retailer depend, Sprouts’ smaller-format shops have supported its robust profitability. Its margins soared at the same time as the corporate delivered 10% annualized gross sales progress during the last decade.
At a convention earlier this yr, Chief Government Officer Jack Sinclair stated he believed the chain might triple its retailer depend to over 1,400 in the long run. Sprouts could possibly be a steal at immediately’s worth if it maintains this bettering profitability whereas it grows.
In 2018, e-commerce gross sales solely accounted for 1% of Sprouts’ income. This yr, they made up 16% of it, and grew by 21% in comparison with 2024. That booming e-commerce enterprise is significant for the corporate because it will increase order frequency and basket measurement whereas bettering the shopper expertise.
In the meantime, Sprouts-branded objects now account for about 25% of gross sales — a determine that has grown from 16% in 2021. These private-label choices not solely carry greater margins but in addition allow the corporate to develop product improvements impressed by its prospects — and now, its Sprouts Rewards loyalty program members.
Launching over 7,000 new product concepts final yr, Sprouts’ private-label choices will complement its just lately launched rewards program, which ought to additional improve the success of the brand new concepts it develops. This degree of product growth is uncommon for a grocer, and will turn out to be a “secret weapon” of types for the corporate because it tailors its new product concepts to match what members of its rewards program are requesting.
Regardless of its positives, the corporate’s valuation stays discounted. The inventory plummeted by greater than 50% this yr following slight earnings misses (however in any other case stable operational success), and now trades at simply 17 instances free money circulate (FCF) and 15 instances earnings, although it grew gross sales by 13% this yr.
Not solely is that this an amazing valuation for traders to purchase the inventory at, it is also an amazing valuation for administration to repurchase shares at — and it is doing so hand over fist. Over the past decade, Sprouts has lowered its variety of shares excellent at 4.5% annualized fee, and it has almost $1 billion left on its present buyback authorization. In a method, it is a win-win for traders. If the inventory continues to wrestle, the buybacks shall be a good higher deal for the corporate. If the inventory recovers, that is nice, too.
Sitting right here in Iowa (the place it is a toasty 43 levels as I write this), I stay up for seeing a Sprouts Farmers Market nearer to me than Kansas Metropolis. That stated, I am curious (and barely fearful) to see how the corporate performs when it expands into colder climates. The chain’s coverage has been to supply a lot of its produce domestically, however it should carry out some logistical magic to help shops greater up within the Midwest and the Northeast. Whereas Sprouts’ distribution facilities sometimes serve a 250-mile radius, this can be examined within the wintertime.
At the moment, roughly three-quarters of its shops are positioned in simply 5 states: California, Arizona, Colorado, Texas, and Florida. Due to this fact, this enlargement “drawback” might be a good distance off, however it might be one thing to watch. In the end, I stay up for Sprouts dealing with this problem at some point, and I consider it stays a no brainer, steady-Eddie progress inventory to purchase on the dip.
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Josh Kohn-Lindquist has positions in Sprouts Farmers Market. The Motley Idiot has positions in and recommends Sprouts Farmers Market. The Motley Idiot recommends the next choices: lengthy January 2028 $75 calls on Sprouts Farmers Market and brief January 2028 $85 calls on Sprouts Farmers Market. The Motley Idiot has a disclosure coverage.
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