Sprouts Farmers Market Inc. SFM has experienced a remarkable surge in its stock price over the past six months. The stock has rallied 36%, comfortably outpacing the Zacks Food-Natural Foods Products industry’s rise of 21.6%. Sprouts Farmers’ unmatched scale and operational capabilities have also helped it outperform the broader Retail and Wholesale sector and the S&P 500 index, which posted respective gains of 11.3% and 4.6%.
 

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This stellar performance raises a crucial question for investors: should they take profits now or consider further investment opportunities? Sprouts Farmers has crafted a reputation for itself within the grocery industry by consistently prioritizing key areas that resonate with both consumers and investors.

Closing Friday’s trading session at $136.97, Sprouts Farmers is trading at a forward 12-month price-to-earnings (P/E) multiple of 28.75X, which positions it at a premium compared to the industry’s average of 19.21X and the S&P 500's 21.24X. However, the stock is trading below its median P/E level of 32.92, observed over the past year. 
 

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Decoding Potential Tailwinds Behind SFM’s Rally

Leveraging its unique product mix and customer-centric approach, Sprouts Farmers has demonstrated steady growth in a competitive environment. The company’s emphasis on fresh produce and health-conscious products appeals to a growing segment of consumers prioritizing wellness and sustainability.

From plant-based proteins to gluten-free snacks and keto-friendly foods, Sprouts Farmers ensures that its shelves are stocked with the latest and most sought-after health products. The company’s commitment to developing innovative products under its private label has resonated well with consumers, contributing to higher margins. We note that the Sprouts brand contributed 23% to total sales during the fourth quarter of 2024. The company introduced 7,100 new products in 2024, including more than 300 Sprouts Brand items such as grass-fed meatballs, organic pasture-raised eggs and premium beauty products.

Sprouts Farmers is actively pursuing store expansion, targeting areas with high growth potential. The company opened 33 new stores in 2024, expanding into Wyoming as its 24th state. Management expects at least 35 new stores in 2025. With 110 approved new locations and 70 executed leases, Sprouts is well-positioned for long-term geographic expansion, particularly in the Midwest and Northeast.

Sprouts Farmers has adopted a multifaceted strategy to expand its customer base and cater to evolving preferences. The company has made substantial investments in e-commerce platforms, online ordering and delivery services to meet the increasing demand for convenience. Strategic partnerships with Uber Eats, DoorDash and Instacart have broadened its digital reach. The fourth quarter witnessed a remarkable 37% surge in e-commerce sales, constituting 14.5% of total sales.

The company's e-commerce business surpassed $1 billion in sales in 2024, fueled by strategic partnerships with Uber Eats and Instacart. The upcoming nationwide loyalty program rollout in 2025 will provide personalized promotions and data-driven customer insights, encouraging higher shopping frequency and increased basket sizes.

Sprouts Farmers Sets Bullish Tone for 2025

Sprouts Farmers expects strong growth in 2025, with net sales projected to rise between 10.5% and 12.5% and comparable store sales increasing between 4.5% and 6.5%. Adjusted earnings before interest and taxes are anticipated to range from $590 million to $610 million, while adjusted earnings per share are expected between $4.52 and $4.68, a notable increase from $2.84 in 2024.

Here’s How Estimates Stack Up for SFM

Reflecting the positive sentiment around Sprouts Farmers, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 30 days, analysts have increased their estimates for the current and next fiscal years by 47 and 56 cents to $4.66 and $5.21 per share, respectively. These estimates indicate expected year-over-year growth rates of 24.3% and 11.8%, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
 

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Should You Buy SFM Stock?

In a competitive landscape that includes The Chefs' Warehouse, Inc. CHEF, Grocery Outlet Holding Corp. GO and SpartanNash Company SPTN, Sprouts Farmers stands out as a compelling investment opportunity. Although it trades at a premium, its elevated price-to-earnings ratio reflects strong market confidence bolstered by positive earnings estimate revisions. While some investors may consider locking in gains after a significant run-up, those with a growth-oriented strategy could find this Zacks Rank #2 (Buy) stock still attractive. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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