Sprouts Farmers Market SFM is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 33.81X, which positions it at a premium compared to the industry’s average of 20.49X and the S&P 500's 22.01X. The stock is also trading above its median P/E level of 28.05, observed over the past year. The valuation does suggest that Sprouts Farmers is overvalued.

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The recent rally might have pushed Sprouts Farmers’ valuation higher. SFM shares have rallied 19% year to date, outpacing the industry’s growth of 5.6%.

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Tailwinds Behind SFM Stock’s Momentum

Leveraging its unique product mix and customer-centric approach, Sprouts Farmers has demonstrated steady growth in a competitive environment. The company’s emphasis on fresh produce and health-conscious products appeals to a growing segment of consumers prioritizing wellness and sustainability.

From plant-based proteins to gluten-free snacks and keto-friendly foods, Sprouts Farmers ensures that its shelves are stocked with the latest and most sought-after health products. The company’s commitment to developing innovative products under its private label has resonated well with consumers, contributing to higher margins. We note that the Sprouts brand contributed 23% to total sales during the fourth quarter of 2024. The company introduced 7,100 new products in 2024, including more than 300 Sprouts Brand items such as grass-fed meatballs, organic pasture-raised eggs and premium beauty products.

Sprouts Farmers is actively pursuing store expansion, targeting areas with high growth potential. The company opened 33 new stores in 2024, expanding into Wyoming as its 24th state. Management expects at least 35 new stores in 2025. With 110 approved new locations and 70 executed leases, Sprouts is well-positioned for long-term geographic expansion, particularly in the Midwest and Northeast.

Sprouts Farmers has adopted a multifaceted strategy to expand its customer base and cater to evolving preferences. The company has made substantial investments in e-commerce platforms, online ordering and delivery services to meet the increasing demand for convenience. Strategic partnerships with Uber Eats, DoorDash and Instacart have broadened its digital reach. The fourth quarter witnessed a remarkable 37% surge in e-commerce sales, constituting 14.5% of total sales.

The company's e-commerce business surpassed $1 billion in sales in 2024, fueled by strategic partnerships with Uber Eats and Instacart. The upcoming nationwide loyalty program rollout in 2025 will provide personalized promotions and data-driven customer insights, encouraging higher shopping frequency and increased basket sizes.

SFM Provides Optimistic Outlook for 2025

Sprouts Farmers expects strong growth in 2025, with net sales projected to rise between 10.5% and 12.5% and comparable store sales increasing between 4.5% and 6.5%. Adjusted earnings before interest and taxes are anticipated to range from $590 million to $610 million, while adjusted earnings per share are expected to be between $4.52 and $4.68, a notable increase from $2.84 in 2024.

Here’s How Estimates Stack Up for SFM

Reflecting the positive sentiment around Sprouts Farmers, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past seven days, analysts have increased their estimates for the current and next fiscal years by 17 and 18 cents to $4.46 and $4.96 per share, respectively. These estimates indicate expected year-over-year growth rates of 18.9% and 11.1%, respectively.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
 

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Should You Buy SFM Stock?

Sprouts Farmers remains a compelling investment, driven by its differentiated product offerings, strong brand positioning and expansion strategy. The company continues to benefit from growing consumer demand for health-focused products, private label innovation and digital transformation, reinforcing its competitive edge. While the stock trades at a premium, its solid execution, robust financial outlook and continued store expansion justify investor confidence. SFM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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