Value Investing with Sven Carlin, Ph.D. on $SFM (Nov 9, 2026)
SFM looks interesting at a P/E of 10 with profitable growth, no debt and a strong self-financing balance sheet, but comparable sales are declining and next-quarter guidance implies half the EPS growth; ROIC will fall as profits decline. Future profits are seen much lower, analysts forecast lower profits next year, and retail competition, margin and weak-consumer risks mean earnings could turn negative and the stock could drop another 50%; the crash may be for a reason, a big risk.
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Sprouts Farmers Market, lots of comments , is mentioned a lot, so let's take a look at it. The arrow was completely destroyed.
Michael Perry opened a full-fledged financial center some time ago . Now he bought more "lips" contracts, which are futures options. This is not a capital investment , but simply buying an option that the stock will recover.
A P/E ratio of 10 is very interesting. Growing organic foods, my wife will love them. They are growing, yes. Everything looks good. Profits are growing. Revenues are rising. Profitable growth. There are no debts as far as I can tell.
But now comparable sales are declining. In the new stores, sales are still high. However, they are doing some share buybacks, but earnings per share growth is changing. Guidance for the next quarter indicates half of that.
The return on invested capital, yes, looks great. One of the reasons Perry is excited about it, but it will decline as profits decline. I am looking at a strong balance sheet. They self-finance their growth, which is very, very important.
But forecasts here point to half the earnings per share for the future. They will make a lot of investments in pricing to maintain their market share. And when it comes to these retailers, as Charlie Munger would say, they are just retailers.
Looking at the numbers now, future profits will be much lower. Analysts are predicting lower profits for next year as well. From negative to positive, perhaps this hasn't been modified yet. The analysts are slow.
But what if it was 2.5 and not 3.70? Pricing, margin risk, declining margins, competition, recession, weak consumer who buys less organic. Perhaps even organic products have started to fall out of fashion a little after their peak in early 2020 and will now settle down.
Yes, we buy as many organic products as possible . Well, the price difference here in Europe isn't crazy. We have a small shop, quality, everything is just personal discussions.
A P/E ratio of 2.5 at 20-25 is possible, but if it hits 10 with negative earnings, the stock could easily drop another 50%. That's why Michael Perry bought Lips contracts. He could lose everything, or he could win 3000.
He bought Lips contracts for 2028 or something like that. Betting, betting on a retailer can work, and it can fail.
I see Michael Perry and others falling in love with something when the stock crashes, but that crash may be for a reason. compare this to Whole Foods Market. We loved Whole Foods when we lived in London.
So, from what I see here, even other major supermarket chains like SPAR and DESS now offer organic products, so it's difficult to compete with organic products only. You can buy most of your needs from your local supermarket, which is interesting.
Accordingly, yes, the sector has been growing and thriving, and it is now likely to stabilize and prove once again that it is just a retail sector. That's a big risk for me.