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In this commentary, I will examine Sprouts Farmers Market, Inc.'s (NASDAQ:SFM) latest earnings update (31 March 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the consumer retailing industry performed. As an investor, I find it beneficial to assess SFM’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Commentary On SFM's Past Performance
SFM's trailing twelve-month earnings (from 31 March 2019) of US$148m has declined by -17% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 13%, indicating the rate at which SFM is growing has slowed down. Why is this? Well, let's look at what's occurring with margins and whether the entire industry is facing the same headwind.
In terms of returns from investment, Sprouts Farmers Market has invested its equity funds well leading to a 27% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 6.7% exceeds the US Consumer Retailing industry of 5.5%, indicating Sprouts Farmers Market has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Sprouts Farmers Market’s debt level, has declined over the past 3 years from 20% to 10%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 76% to 93% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have capricious earnings, can have many factors affecting its business. You should continue to research Sprouts Farmers Market to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SFM’s future growth? Take a look at our free research report of analyst consensus for SFM’s outlook.
- Financial Health: Are SFM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2019. This may not be consistent with full year annual report figures.
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 firstname.lastname@example.org. 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.