Go Organic with Sprouts

12/24/2015 8:00 am EST

Focus: STOCKS

When it comes to selling natural and organic foods to consumers, no company is as well known as Whole Foods, but that isn’t the only player in this market and there are great reasons to look elsewhere, asserts Jay Taylor, Game Changers.

Sprouts Farmers Market (SFM) has emerged as a top stock and top natural grocer. Indeed, there are a lot of reasons to like Sprouts.

Sprouts was founded in 2001 by a family that had previously started and sold another specialty grocery store, Henry’s Farmers Market. In 2011, private equity firm Apollo Global purchased Sprouts and brought about a merger between Sprouts and Henry’s Farmers Market.

The resulting company, Sprouts Farmers Market, then went public in 2013 and rose 123% during its first day of trading.

Whole Foods Market (WFM) has gone after a premium clientele and charged premium prices. Meanwhile, Sprouts brings natural and organic goods to the masses.

With lower prices, a greater reliance on local over organic and a focus on value over premium offerings, Sprouts is the mainstream alternative to Whole Foods.

While there is certainly still a premium market for natural and organic foods and I don’t see Whole Foods going anywhere, the masses are beginning to catch on to the importance of eating healthier and higher quality foods.

Meanwhile, Sprouts offers a mix of prepared foods, local foods, nationally recognized brands, as well as off-brands and lean operations to attract a different clientele than does Whole Foods.

As natural and organic foods become increasingly mainstream, the mainstream is skipping Whole Foods and seeking alternatives. Sprouts is that alternative.

Sprouts trades at 26 times fiscal 2016 earnings of $0.96 per share, 22 times fiscal 2017 earnings of $1.14 per share, and 18.8 times fiscal 2018 earnings of $1.34 per share.

I think Sprouts stock is cheap relative to its growth and I know Sprouts’ board agrees with me…they just authorized a $150 million buyback program.

We’re thrilled to be able to add Sprouts stock to our portfolio at current levels and are excited to see what 2016 brings for this hot natural grocer.

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