Finance

Sprouts Stock Plunges: Is Now the Time to Buy This Undervalued Grocery Chain?

Sprouts’ stock declined after Q3 results, but analysts see its valuation as attractive, highlighting long-term growth potential.

byAndres Castro

November 16, 2025, 6:41 AM

A person's hands holding a smartphone displaying stock market data, with a laptop in the background.

A close-up of a person checking live stock quotes on a mobile phone. By MDL.

Executive Summary

Sprouts Farmers Market’s stock declined over 20% after its third-quarter earnings report, which included a forecast for slower comparable-store sales growth, making its current price-to-earnings ratio of 16 attractive to some analysts.

The natural grocery chain plans significant national expansion, aiming to surpass 1,000 locations from its current 464, and has achieved a 141% revenue increase over the past decade.

Under new leadership, Sprouts has significantly improved profitability, achieving a record operating margin of 7.84% and generating $458 million in free cash flow, used for share repurchases that boosted earnings per share by 522% over ten years.

The Story So Far

Sprouts Farmers Market’s stock has become more attractively priced following a recent decline after its third-quarter earnings report, which included a forecast for slower comparable-store sales growth. This projected slowdown is largely attributed to challenging comparisons against exceptionally strong growth exceeding 10% in the prior year, leading to a negative market reaction.

Why This Matters

The recent significant decline in Sprouts Farmers Market’s stock, triggered by a forecast of slower comparable-store sales growth, has made its valuation more attractive and potentially undervalued. This presents a compelling opportunity for investors, as the company maintains a clear long-term strategy for aggressive store expansion, consistent revenue growth from existing locations, and ongoing profitability improvements, positioning it as a stable growth option outside of highly speculative market segments.

Who Thinks What?

Analysts suggest that Sprouts Farmers Market’s stock is now attractively priced and potentially undervalued for its long-term growth potential, citing its consistent operational strategy, ongoing expansion, and margin improvements.

Investors reacted negatively to Sprouts Farmers Market’s third-quarter earnings report and the forecast for slower comparable-store sales growth, leading to a significant decline in the company’s stock price.

Sprouts Farmers Market management is focused on national expansion with a goal of over 1,000 locations, enhancing profitability through operational improvements, and utilizing free cash flow for strategic share repurchases.

Sprouts Farmers Market’s stock has become more attractively priced after a recent decline following its third-quarter earnings report, which included a forecast for slower comparable-store sales growth. The natural grocery chain, which operates 464 stores, is now trading at a price-to-earnings ratio of 16, leading some analysts to suggest its long-term potential may be undervalued by investors.

Company Overview and Expansion

Sprouts Farmers Market differentiates itself in the competitive grocery sector by targeting health-conscious, higher-income consumers. Its stores feature an open layout emphasizing produce and bulk goods, along with niche consumer packaged goods brands that cater to specific dietary needs.

The company has expanded nationally, currently operating 464 stores. Management has articulated a long-term goal of surpassing 1,000 locations across the United States. This expansion strategy, combined with consistent comparable-store sales growth, has contributed to a cumulative 141% revenue increase over the past decade.

Financial Performance and Leadership

Before the COVID-19 pandemic, Sprouts faced challenges with compressing profit margins. A new leadership team, including former Walmart U.S. grocery leader Jack Sinclair, was brought in to address these issues. Operational improvements, such as supply chain optimization and reduced discounting, have significantly enhanced the company’s profitability.

Over the last 12 months, Sprouts achieved a record operating margin of 7.84% and generated $458 million in free cash flow. The company has utilized this cash flow for share repurchases, reducing its outstanding shares by 36% over the past ten years. This capital allocation strategy has supported a 522% increase in earnings per share over the same period.

Recent Stock Movement and Outlook

Following its third-quarter earnings report, Sprouts Farmers Market’s stock experienced a decline of more than 20% and is now down 54% from its all-time highs. This downturn occurred after the company projected a slowdown in same-store sales growth, which analysts attribute to challenging comparisons against exceptionally strong growth exceeding 10% in the prior year.

Looking ahead, Sprouts expects same-store sales growth to normalize into the low single digits over the long term. Despite the recent market reaction, the company’s current valuation, with a price-to-earnings ratio of 16, is seen by some as attractive when compared to higher-valued technology and artificial intelligence stocks.

Investment Perspective

Analysts suggest that Sprouts Farmers Market remains a viable growth stock due to its consistent operational strategy. This includes continued store expansion, steady revenue growth from existing locations, ongoing margin improvement, and strategic capital returns through share buybacks. The company’s established formula and current valuation present a compelling case for investors seeking opportunities outside of highly speculative market segments.