This Small Grocer That 1 Analyst Calls His Best Retail Stock Just Posted Another Blowout Quarter

Unless you stumbled across this article with a specific ticker symbol search, there's a good chance that you've never heard of BBB Foods (NYSE: TBBB). That's fair. Despite operating a chain of 3,162 supermarkets, most investors and even more consumers have never heard of the Mexican operator of small-box grocery stores.

Maybe it's a good time to warm up to this under-the-radar stock that jumped higher at the start of Thursday's trading after posting strong third-quarter results after Wednesday's market close. Even if you think that grocery retail is an industry with yawn-worthy low margins and sleepy revenue moves, BBB Foods is a uniquely positioned player that has all the racing stripes one would expect from an elite growth stock.

The stock has now almost doubled since going public at $17.50 early last year. You don't expect a supermarket chain to move this fast, but BBB Foods is all about moving fast, gobbling up market share, and exceeding expectations. Come inside for a closer look at its latest quarter.

Image source: Getty Images.

Aisle have what she's having

You probably don't know a grocery store operator that grew revenue at a 37% clip in the third quarter, so allow me to introduce you to BBB Foods. It owns the fast-growing chain of hard discount food retailing called Tiendas 3B. The term "hard discount" is jargon that isn't widely used outside of trade professionals, but it basically boils down to a supermarket that prides itself on low prices through operating efficiencies and emphasizing private labels over pricier consumer brands.

This isn't a warehouse club concept. If you're looking for a stateside equivalent, Aldi and to a lesser extent Trader Joe's are the better matches. However, the typical Tiendas 3B store is even smaller. It has the footprint of a large convenience store, and you can usually staff it with as little as three versatile employees.

BBB Foods launched 20 years ago by a Turkish businessman who moved his family to Mexico without knowing a lot of Spanish to chase this opportunity. CEO Anthony Hatoum was a Harvard MBA with civil engineering degrees from Columbia and MIT who was covering Turkey's hard discounting leader BIM as an investment banker. He knew he couldn't compete in his home country, so he studied a world map to find the place that lacked a major player in this niche and had favorable factors to thrive. Mexico came out on top.

It was the right call.

Producing results through produce

The 37% increase in revenue it posted is a step down from the 38% pop it delivered three months earlier, but it's still the second-strongest growth that BBB Foods has posted as a public company.

How does a grocery store grow its top line at a 37% clip? BBB Foods got there through double-digit growth for both expansion and store-level comps. It has opened 528 Tiendas 3B stores over the past four quarters, a 20% increase over the past year. It's opening an average of more than a store a day, introducing 131 new locations in the third quarter alone.

Comps is where a good growth story becomes a great one. Same-store sales rose 17.9% in the third quarter, and this isn't stacked on top of depressed results a year earlier. Comps rose an equally impressive 11.6% in the third quarter of last year.

Put another way, the average store is generating 31.6% more in sales than it was two years ago. The compounding magic of big numbers can be a beautiful thing.

The bottom line isn't as warm and fuzzy. BBB Foods is losing money, but that's expected as it builds out its empire through stores and distribution centers to serve its rollout across Mexico. However, back out noncash share-based compensation expenses, and earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 44% for the quarter. Analysts don't see reported profitability happening until 2027, but markets reward top-line growth stories early in a booming concept's trajectory.

Speaking of analysts, Joseph Giordano and his team at JPMorgan boosted his price target on BBB Foods from $35.50 to $39 last month. The firm was previewing the earnings season report that it posted this week. Giordano figured that the trends would soften in the third quarter after the grocer's head-turning second quarter, but JPMorgan still reiterated its bullish rating, with BBB Foods as its top stock pick in the retail sector.

It actually proved to be a conservative call. Comps in the third quarter actually accelerated from the 17.7% jump it delivered in the second quarter. With momentum on its side and an all-weather business model, don't be surprised if BBB Foods winds up in more investor shopping carts in the coming weeks, months, and years.

JPMorgan Chase is an advertising partner of Motley Fool Money. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BBB Foods and JPMorgan Chase. The Motley Fool has a disclosure policy.