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We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. Over the last year the Sprouts Farmers Market, Inc. (NASDAQ:SFM) share price is up 38%, but that's less than the broader market return. However, the longer term returns haven't been so impressive, with the stock up just 11% in the last three years.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Sprouts Farmers Market was able to grow EPS by 91% in the last twelve months. It's fair to say that the share price gain of 38% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Sprouts Farmers Market as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 10.87.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Sprouts Farmers Market's earnings, revenue and cash flow.
A Different Perspective
Sprouts Farmers Market provided a TSR of 38% over the last twelve months. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 1.4% per year, over five years. It could well be that the business is stabilizing. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Sprouts Farmers Market , and understanding them should be part of your investment process.
Sprouts Farmers Market is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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