Why Sprouts Farmers Markets, Inc. Stock Surged 29% Last Year

Markets Motley Fool

What happened

Continue Reading Below

It was a volatile year for Sprouts Farmers Markets, Inc. (NASDAQ: SFM), but in the end, the organic grocery chain finished with solid gains, up 29% according to data from S&P Global Market Intelligence. Still, the company's performance was anything but consistent as the stock moved wildly on earnings reports and acquisition news and rumors.

The chart below shows the swings back and forth over the year.

So what

Sprouts' first big move came on March 16-17 as the stock jumped 16% in a two-day span in response to rumors that privately held Albertson's could take over Sprouts. News reports later confirmed that the two supermarket chains held preliminary talks about a combination, but we now know the talks never advanced.

Then in June, the stock plunged 15% over a two-day span after rival Kroger, the country's largest traditional grocer, delivered a terrible earnings report, casting doubt on the entire supermarket industry. The next day, Amazon announced its acquisition of Whole Foods, sending shockwaves through the industry as Amazon is known for leveling margins when it enters a new sector.

Continue Reading Below

After recovering those losses, Sprouts took it on the chin again in late August when Amazon completed its acquisition of Whole Foods and announced immediate price cuts in several major categories, making its scorched-earth strategy clear. Since Whole Foods also specializes in organics and healthy food, Sprouts could have the most to lose from an increase in traffic to the Amazon subsidiary.

Finally, the stock got a spark when Sprouts delivered a strong third-quarter earnings report with comparable sales up 4.6% and an increase in full-year guidance. It also reassured investors as it was its first quarterly report since Amazon took over Whole Foods. Momentum carried the stock higher over the rest of the year.

Now what

While the late rally made the year a winner, Sprouts has still been a disappointment since its IPO nearly five years, as shares are down significantly. Still, the threat from Amazon seems to be exaggerated as other grocery stocks have bounced back also over the last few months. If Sprouts can keep up its momentum from the third quarter, 2018 could be a rewarding year as well.

10 stocks we like better than Sprouts Farmers Markets
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sprouts Farmers Markets wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Kroger. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.