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Sprouts Farmers Market, Inc. (NASDAQ:SFM): Are Analysts’ Forecast Signalling Trouble Ahead?

Simply Wall St

Since Sprouts Farmers Market, Inc. (NASDAQ:SFM) released its earnings in June 2019, analyst forecasts seem bearish, with profits predicted to drop by 8.9% next year against the past 5-year average growth rate of 10%. Presently, with latest-twelve-month earnings at US$159m, we should see this fall to US$144m by 2020. Below is a brief commentary on the longer term outlook the market has for Sprouts Farmers Market. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

Check out our latest analysis for Sprouts Farmers Market

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

The longer term expectations from the 19 analysts of SFM is tilted towards the negative sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of SFM's earnings growth over these next few years.

NasdaqGS:SFM Past and Future Earnings, September 6th 2019

This results in an annual growth rate of -1.9% based on the most recent earnings level of US$159m to the final forecast of US$141m by 2022. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of $1.29 in the final year of forecast compared to the current $1.23 EPS today. Earnings decline appears to be a result of cost outpacing top line growth of 8.1% over the next few years. With this high cost growth, margins is expected to contract from 3.0% to 2.1% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Sprouts Farmers Market, I've compiled three relevant aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Sprouts Farmers Market worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Sprouts Farmers Market is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Sprouts Farmers Market? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.