Farmer Bros. Co. FARM has experienced a remarkable 29.8% surge in its stock price over the past three months, drawing significant attention from investors. This remarkable rally raises an important question: Should investors lock in their gains now, or is there room for further growth?

Farmer Bros is benefiting from key business transitions, with a strong focus on Direct-Store Delivery (DSD) and cost reduction driving growth. Improved coffee pricing, operational efficiency and customer expansion position the company for long-term profitability as market conditions stabilize. During the said period, the stock has outperformed the Zacks Food - Natural Foods Products industry, which returned 3.9%, as well as the broader Retail and Wholesale sector and the S&P 500, which declined 1.2% and 2.6%, respectively.

FARM Price Performance vs. Industry, S&P 500 & Sector

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FARM has outperformed major industry participants, such as Performance Food Group Company PFGC, SpartanNash Company SPTN and Sprouts Farmers Market, Inc. SFM, all of which are actively expanding in the food space. Over the past three months, Sprouts Farmers and SpartanNash posted gains of 17.6% and 10.4%, respectively, while Performance Food saw a decline of 7.5%. 

FARM stock closed at $2.35 yesterday, 37.5% below its 52-week high of $6.89, reached on April 1, 2024. Currently, Farmer Bros is trading above both its 50-day and 200-day moving averages, signaling a bullish trend. 

FARM Trades Above 50 & 200-Day Moving Average

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With a forward 12-month price-to-sales (P/S) ratio of 0.14 — well below the industry average of 0.24 — FARM stands out as an attractive value investment. The stock is currently trading at a lower P/S ratio than key industry players like Performance Food (0.18) and Sprouts Farmers (1.66), while remaining slightly above SpartanNash, which trades at 0.07. With a Value Score of B, Farmer Bros appears attractive from a valuation standpoint. 

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Given the positive momentum, assessing Farmer Bros’ growth prospects is essential for determining the best strategy for your investment portfolio.

What’s Powering FARM’s Continued Growth?

Farmer Bros continues to strengthen its market position by expanding sales in DSD and branded coffee segments, key high-margin growth areas. With a strong emphasis on premiumization and customer expansion, FARM is effectively capitalizing on rising demand trends while enhancing brand presence. These efforts align with the company’s strategic vision to drive sustainable revenue growth and solidify its standing in the competitive coffee industry.

To build on this momentum, FARM is set to complete its SKU rationalization and brand pyramid projects by the end of third-quarter fiscal 2025, streamlining operations and boosting efficiency. The introduction of a specialty-tier coffee brand, which has already launched with positive early feedback, is expected to further enhance customer engagement. These strategic initiatives simplify the go-to-market approach, providing flexible pricing and product options, ultimately driving growth and retention into the second half of 2025.

The company’s financial performance reflects strong operational execution, with notable gross margin expansion in the fiscal second quarter. In addition, the company reported positive adjusted EBITDA, marking a significant milestone in its financial recovery. FARM benefits from improved pricing execution, cost efficiencies, and supply chain optimization. A disciplined focus on cost control, logistics, and administrative efficiencies has helped mitigate inflationary pressures, positioning FARM to sustain and expand operating margins in the coming quarters.

The company’s ability to retain and expand its customer base, coupled with ongoing cost discipline, supports its growth story. With a clear strategy to drive profitability and enhance shareholder value, FARM is poised for further financial strengthening. 

FARM’s Set of Challenges

Despite ongoing cost-cutting efforts, Farmer Bros is not immune to rising operating expenses, which could put additional pressure on profitability. In addition, macroeconomic uncertainties, including inflationary pressures and shifts in consumer spending, may impact demand, making it more challenging for FARM to sustain growth. The company also operates in a highly competitive coffee industry, facing intense pressure from well-established brands with stronger market positioning. Furthermore, heightened risks of trade actions affecting key export markets for coffee and related products could disrupt supply chains and add further financial strain.

Should Investors Stay Bullish on FARM in 2025?

Although Farmer Bros faces several challenges that may affect its performance, its recent stock performance, strong financial execution, and strategic growth initiatives make it a compelling investment consideration. With FARM trading above key moving averages, maintaining a favorable valuation, and demonstrating improved operational efficiency, investors may find its current levels attractive for long-term positioning. At present, FARM carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Farmer Brothers Company (FARM) : Free Stock Analysis Report

SpartanNash Company (SPTN) : Free Stock Analysis Report

Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report

Performance Food Group Company (PFGC) : Free Stock Analysis Report

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

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