What should investors know about Sprouts Farmers Market Inc’s (SFM) future?

Analysts covering Sprouts Farmers Market Inc (NASDAQ:SFM) are predicting the earnings to grow 4.7% in years’ time. What are the important facts you need to know? I’m going to investigate the latest data and look into some metrics you shouldn’t overlook. See our latest analysis for SFM

How is Sprouts Farmers Market going to perform in the future?

Based on analysts estimates SFM’s earnings are to grow 35.2% over the next 3 years. This would see the EPS rise to $1.25 levels which would no doubt please investors who are used to an average of $0.79 over the past few years.

Sprouts Farmers Market (NasdaqGS:SFM) Past Future Earnings Apr 22nd 17
Sprouts Farmers Market (NasdaqGS:SFM) Past Future Earnings Apr 22nd 17
This will project the annual earnings to levels higher than recent years.

During the same time revenue is predicted to increase from $4.05 Billion to $6.32 Billion in 2020 and profits (net income) are predicted to escalate from $124 Million to $150 Million in 2020, roughly growing 1.2x. Margins will be thinner than Louise Brooks’ negligee during this time as well.

What is the basis for potential growth?

Sprouts Farmers Market has underperformed the average growth in earnings of the Food and Staples Retailing industry over the past year.

Whilst SFM’s Return on Equity of 16.6% isn’t horrific, it means that the company has underperformed the Food and Staples Retailing industry average of 17.57%. The level is expected to rise in 3 years time to a very attractive ROE of 22.2%.

Sprouts Farmers Market (NasdaqGS:SFM) Future Perf Apr 22nd 17
Sprouts Farmers Market (NasdaqGS:SFM) Future Perf Apr 22nd 17

Return on equity (ROE) is a measure of how much profit (net income) a company makes as a percentage of the shareholders equity. Equity is made up of funds from the original issuing of shares and any retained earnings from previous financial years. It varies considerably across sectors, for this reason it is important to asses a stocks ROE relative to its industry. Whilst it is true that the higher the ROE the better the company is performing, ROE does have a weakness. A stock with a disproportionate amount of debt can lead to a small equity base. Thus, a small amount of net income (the numerator) could still produce a high ROE off a modest equity base (the denominator). For this reason investors should always consider the debt situation in conjunction with ROE.

Final words

While Sprouts Farmers Market is not a fast growing company, it can still offer very interesting investment opportunities. I recommend you see our latest FREE analysis to find out!

If you are not interested in SFM anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.