SFM is a compelling value play; low forward P/E of 12x combined with projected 10-15% annual EPS growth from new stores and share buybacks supports outperformance.

Okay, John, that's the stock you wanted to bring up for discussion . Actually, I like this stock, at least superficially. What is the argument in favor of Sprouts Farmers Market?

Yes, the trading symbol is SFM . Listen, this isn't a company I would normally bring up when we talk about growth stocks. However, reading Warren Buffett’s annual letters finally helped me a few years ago to understand that growth investing and value investing are the same thing.

You are simply trying to balance the stock's value with the available growth opportunities. If you can determine both of these things, you can identify a good investment.

To begin with, Sprouts stock is very cheap, trading at only 12 times its future earnings. So, the value is very good. This means that it needs less growth compared to other companies to be a good investment given its low initial price .

Yes, and this is a company that has achieved a compound annual growth rate of 10% in its revenues over the past three years.

What's so special about this grocery store? I don't have a Sprouts store near me, but if I understand the nature of the business correctly, is it a high-end grocery store? You may have a different brand in your area, but this is a trend we see increasing as we move away from traditional stores to more upscale shops .

Is this the right place for her, where she'll get slightly better profit margins than the 2 to 3% she might get at a regular grocery store?

To be clear, I mean the margins aren't necessarily great. I mean, it might be acceptable for the grocery sector, but it's still very low compared to other investment opportunities.

What distinguishes Sprouts is the growing desire for fresher, organic, and homemade products. Sprouts benefits greatly from this general trend.

Actually, I understand that. You don't have a " Sprouts" store near you. You might get it in the next five to ten years, as it currently only has about 500 branches. The company aims to grow by about 10% annually until it reaches 1,000 branches in the long term.

This gives it about 7 years of growth from now if it achieves those annual targets.

Incidentally, this is your basic assumption for growth: its ability to open new sites that achieve a sales volume similar to the existing sites. So, we might grow by 10% annually in revenue from new sites alone.

The number might be slightly lower. Those stores may have slightly lower sales volumes.

But can you achieve growth in sales at existing stores? Normally, the company was able to do that. Not this year. This year has been somewhat lukewarm in terms of sales growth, but you can start to see the rationale for their ability to increase revenue by 10% annually through new stores and existing store sales.

This company also did a good job of buying back its shares. It has reduced its share count by about 16% in the past five years. It's certainly not the best I've seen, but it's not bad either.

So, you can add that small amount of additional growth to your earnings per share.

We may achieve earnings per share growth of 12% annually. We might reach 15% annual growth in earnings per share . We are talking about roughly doubling profits every 5 years at this rate.

The stock is currently trading at a forward price-to-earnings ratio of only 12 times. This is a stock that could theoretically outperform the market with this modest growth. Yes, I love the opportunity to expand valuation multiples for companies like this.

So, you know, this is a company I haven't really explored, probably because I can't actually go there. I would like to have practical experience, but it is certainly a compelling case.