Sprouts Farmers Market Looks Affordable Pre-Earnings

The grocery chain stock has grown 50% over the past year

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Sprouts Farmers Market, Inc. (NASDAQ:SFM) is an American supermarket chain headquartered in Phoenix, Arizona. The grocery chain offers natural and organic foods and household items. Sprouts has more than 35,000 employees and operates more than 340 stores in 23 states. SFM stock price has increased a decent 50% over the past 12 months. In addition, Sprouts stock has grown roughly 10% since the beginning of 2021. However, the equity remains down 20% from its July peak of $28.00.

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Sprouts Farmers Market recently announced that it plans to report its fourth quarter results on Thursday, Feb. 25, after the market closes. Analysts project that SFM will report an earnings per share (EPS) of $0.39 on its upcoming quarterly earnings report.

As a quick look back, SFM outperformed earnings expectations on all four of its most recent quarterly reports. For the fourth quarter of 2019, Sprouts stock beat analyst expectations by a margin of $0.14 and reported earnings of $0.27 per share. For the first quarter of 2020, SFM increased its EPS to $0.78, and beat expectations by a margin of $0.24. Sprouts subsequently decreased its reported EPS down to $0.57 for the second quarter of 2020, but still beat expectations by $0.21. In its most recent quarterly earnings, SFM reported earnings of $0.51 per share and beat earnings expectations by a margin of $0.15.

Overall, the company seems like a promising value play. Sprouts stock currently trades at a very attractive price-earnings ratio of 10.53. The biggest fundamental issue for SFM right now lies in its balance sheet, which holds $1.5 billion in total debt and just $137.52. million in cash. Nonetheless, Sprouts is showing very promising revenue and net income growth trends. Over the past 12 months, Sprouts Farmers Market has added $600 million in revenue and nearly $100 million in net income. Furthermore, Sprouts has increased it revenue by $1.6 billion in the last three years, making SFM one of the fastest growing grocery stocks available on the market. In general, SFM seems to be an undervalued stock with solid potential growth.

For those looking to speculate on SFM's next move with options, premiums are quite affordable at the moment. The security's Schaeffer's Volatility Index (SVI) of 40% sits in the relatively low 13th percentile of its annual range. This means options traders are pricing in relatively low volatility expectations.

 

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