Defensive stocks are showing some relative strength, and Sprouts Farmers Market lands smack in the middle of that investing pool with a year-to-date gain of 25%. The grocery chain is the IBD Stock of the Day as it moves toward new highs.
The provider of high-quality organic and healthy foods rallied as much as 343% from an initial breakout in September 2023. Today, the stock is setting up in a chart pattern that could extend its already impressive run.
Sprouts went public in August 2013 and has lived up to its name, growing into a company with a market cap of more than $15 billion. That's larger than supermarket giant Albertsons, which has a market cap of $12.39 billion, according to IBD MarketSurge.
In fact, Sprouts Farmers Market is good enough to make the IBD Big Cap 20 screen.
The retailer's earnings growth accelerated from 14% to 32%, 40% and 61% in the past several quarters. Analysts expect current-quarter EPS to climb 38%. Sales growth also accelerated 9%, 12%, 14% and 18%. The consensus analyst estimate for Q1 is $2.202 billion, an increase of 17% according to FactSet. The company will report first-quarter earnings April 30.
Foot traffic has been growing. Visits to Sprouts Farmers Market stores rose an average of 7.2% every month of 2024 on a year-over-year basis, according to retail research firm Placer.ai. That outpaced the wider grocery segment by an average of six percentage points. Monthly visits per store also rose.
"The promising coupling of overall and visits-per-location growth seems driven by the brand's powerful understanding of who they are and what they bring to the market," Placer said in a report. "The focus on high quality, fresh products is resonating, and the utilization of small-format locations is empowering the chain to bring locations to the doorstep of their ideal audiences."
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The U.S. imports many foods that fall under new tariffs. But CEO Jack Sinclair has said most of the food Sprouts sells is grown in the U.S. Still, it may need to change sourcing in some instances. Steel tariffs, he added, could affect new-store construction.
Sprouts Farmers Market Leads Industry
The 440-store chain is reducing its average store size from 30,000 square feet to what it believes is a more efficient 23,000 square feet, the company said in an investor presentation. It plans to open at least 35 stores this year.
Sprouts is using better site selection analytics, which is helping open better stores, UBS analysts said in a March 25 research note. UBS has a neutral rating and gives the stock a 195 price target, about 23% above where shares traded on Thursday.
"Our key takeaway is that its management team is highly aligned and laser focused on continuously improving the customer experience," analyst Mark Carden wrote. "It's leaning into being one of the few pure players at scale in natural & organic, and sees meaningful opportunity to boost its wallet share among customers in its (about) $200 billion addressable market."
In a small industry group of 15 stocks, Sprouts has the highest Composite Rating. It also has the best EPS Rating and SMR Rating, making it the leader of the IBD industry group.
IBD's supermarket and mini-markets industry group has climbed to No. 13 out of 197, and is up more than 9% this year. Of 20 industry groups in the IBD's Retail sector, the group is the second-best performer after discount and variety chains.
Sprouts Farmers Market Stock Setting Up
The stock is forming a cup base with a buy point at 178.99. The relative strength line is making new highs, a positive sign for future stock performance.
But after more than quadrupling in price over the past 18 months, should investors still expect further gains?
The stock's current base is third stage, from which the chances of big gains are smaller. The chances of a failed breakout are also bigger than from earlier bases, such as the ones that Sprouts formed in late 2023 and 2024.
Despite that it has declined a relatively moderate 27% from its February peak, Sprouts Farmers Market stock doesn't trade all that calm. The stock has a 21-day average true range (ATR) of 4.72%.
The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs. In the current, unpredictable market, IBD suggests stocks with ATRs of 3% or below.
