How Good Has Sprouts Farmers Market Stock Actually Been?

Over the course of just one decade, Sprouts Farmers Market (NASDAQ: SFM) went from a disappointing initial public offering to a young multibagger with a bright future.

Today, I'll examine the better-for-you grocer's stock over the last one, three, and five years and explain why the company still looks like a buy -- particularly after its recent 50% drop.

Sprouts Farmers Market's rough 2025

If I just looked at the company's stock price performance over the last year, it'd be easy to think something has gone horribly wrong with Sprouts.

Over the last year, the company has lagged the S&P 500 index by nearly 60%.

However, for 2025, Sprouts' management expects the company to grow:

• sales by 14%
• same-store sales by 7%
• earnings per share by 40%
• its store count by 8%

Sprouts Farmers Market is far from a broken business.

Focusing on healthy, attribute-driven products (think gluten-free, organic, non-GMO, Kosher, vegan, plant-based, cage-free, high-protein, and more), Sprouts has carved out a lucrative niche in the premium grocery market.

While management believes same-store sales could dip to 1% growth in the fourth quarter on weakening consumer confidence, this is not a Sprouts-specific problem.

Image source: Getty Images.

A 2023-2024 pop and a 2025 drop

Even following Sprouts' recent 50% decline, the company has nearly doubled the total returns of the S&P 500 over the last three years, rising 146%.

Operationally, Sprouts only grew stronger. Net income and free cash flow nearly doubled since 2022, while sales increased by 10% annually.

However, the expectations around Sprouts' stock went on a roller-coaster ride as its price-to-earnings ratio demonstrates.

SFM PE Ratio data by YCharts

While a significant portion of this valuation change was due to Sprouts resembling a traditional growth stock over the last couple of years, I'd argue that the market was overly optimistic in late 2024 and is now way too pessimistic.

Long story short, investors need to focus on a company's actual operations and let the market do its thing. It will eventually balance out over the long run and may provide us with opportunities to buy along the way.

Setting the stage in 2021 and 2022

Perhaps the most significant developments that led to Sprouts' outperformance occurred in two of its quieter years, 2021 and 2022.

Sprouts:

• built two (of its current seven) distribution centers
• saw e-commerce and private label sales become more than 10% of revenue
• switched to a smaller format for its new stores, spurring faster growth and boosting return on investment
• restarted its buyback program (shares outstanding down 17% since)

At the time, the market wasn't overly impressed with any of these individual items. However, over the course of five years, each has become a key component of what has made Sprouts such a powerful investment.

Sprouts is a perfect example of how even high-quality stocks can temporarily underperform, as a stock's share price movement doesn't always match its operational success.

Is Sprouts Farmers Market a buy?

Ultimately, if we zoom out on Sprouts' five-year time horizon, it is clear to me that the stock is a buy -- especially at just 16 times earnings today.

With its highly profitable, smaller-store formats, massive buybacks, top-tier customer satisfaction, and the recent launch of its Sprouts Rewards program, there's a lot to like about the company's future.

Josh Kohn-Lindquist has positions in Sprouts Farmers Market. The Motley Fool has positions in and recommends Sprouts Farmers Market. The Motley Fool recommends the following options: long January 2028 $75 calls on Sprouts Farmers Market and short January 2028 $85 calls on Sprouts Farmers Market. The Motley Fool has a disclosure policy.