The stock of Sprouts Farmers Market (SFM, Financial) recently experienced a daily loss of 7.17%, with a 3-month gain of 3.39%. Its Earnings Per Share (EPS) stands at 2.41. With these figures in mind, the question arises: is the stock modestly overvalued? This article aims to provide an in-depth valuation analysis of Sprouts Farmers Market. Read on to gain valuable insights into the company's valuation.
Company Overview
Sprouts Farmers Market Inc (SFM, Financial), an American specialty grocer, is known for its fresh and naturally derived products. Founded in 2002, the company has a significant presence in California, with over a third of its 386 stores located there. As of fiscal 2022, produce accounted for around 20% of its sales, and private-label products constituted nearly 20% of sales. With a market cap of $4.10 billion and sales reaching $6.60 billion, it's crucial to compare the company's stock price with its GF Value to determine its fair valuation.
Understanding GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. It's calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it's likely overvalued, indicating potentially poor future returns. Conversely, if it's significantly below the GF Value Line, it may be undervalued, suggesting higher future returns.
According to our valuation method, Sprouts Farmers Market (SFM, Financial) appears to be modestly overvalued at its current price of $40.24 per share. Consequently, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength Analysis
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing its stock. For Sprouts Farmers Market, the cash-to-debt ratio stands at 0.16, which is lower than 72.22% of 306 companies in the Retail - Defensive industry. Overall, Sprouts Farmers Market's financial strength is fair, with a GuruFocus ranking of 6 out of 10.
Profitability and Growth
Investing in profitable companies typically carries less risk, especially if the company has demonstrated consistent profitability over the long term. Sprouts Farmers Market has been profitable for 10 years over the past decade. The company's operating margin of 5.86% is better than 75.88% of 311 companies in the Retail - Defensive industry. Its growth ranks better than 61.03% of 290 companies in the same industry, with an average annual revenue growth of 7.6% and a 3-year average EBITDA growth of 16.1%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another method of assessing its profitability. When the ROIC is higher than the WACC, the company is creating value for shareholders. Sprouts Farmers Market's ROIC stands at 11.31, and its WACC is 7.45 for the past 12 months.
Conclusion
In conclusion, the stock of Sprouts Farmers Market (SFM, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 68.73% of 259 companies in the Retail - Defensive industry. To learn more about Sprouts Farmers Market's stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
