We recently compiled a list of the 10 Best Organic Food and Farming Stocks To Invest In. In this article, we are going to take a look at where Sprouts Farmers Market, Inc. (NASDAQ:SFM) stands against the other organic food and farming stocks.
The Rise of Organic Food and Farming
Organic farming practices focus on using natural methods to cultivate crops, avoiding synthetic fertilizers and pesticides. This approach not only enhances the quality of food but also contributes to preserving biodiversity and maintaining healthy ecosystems. The organic food and farming sector provides economic benefits as well, creating jobs and supporting rural communities.
The global organic food and farming industry has experienced significant growth in recent years, reflecting a shift in consumer preferences towards healthier and more sustainable food options. According to a report by The Business Research Company, the global organic food market was valued at $244.82 billion in 2023. The market is expected to grow at a compound annual growth rate (CAGR) of 15.1% during 2024-2028 to reach a value of $489.75 billion by the end of the forecast period. This growth is largely driven by increasing awareness of health benefits associated with organic products and a growing concern for environmental sustainability.
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The 25th edition of the yearbook “The World of Organic Agriculture,” published by the Research Institute of Organic Agriculture (FiBL) and IFOAM – Organics International, highlights significant growth in the organic farming sector. Presented in February 2024 at the BIOFACH trade fair in Nuremberg, Germany, the report reveals that by the end of 2022, the area under organic management reached 96.4 million hectares. This marks an impressive increase of 26.6% or 20.3 million hectares compared to the previous year.
Australia continues to lead the world in organic farming area, boasting 53 million hectares, an increase of 17.3 million hectares. The report shows that organic farming area increased across all continents, reflecting a global trend towards more sustainable agricultural practices. In terms of producers, the number of organic farmers worldwide rose to 4.5 million in 2022, which is nearly a 26% increase from 2021.
Support for organic agriculture is gaining momentum globally, with many countries implementing action plans to promote organic farming practices. The number of fully implemented national regulations for organic agriculture rose to 75 in 2023, indicating a commitment to enhancing and regulating this sector.
According to the report, the global organic market reached nearly EUR 135 billion in 2022. The United States was the largest market, valued at approximately EUR 56.6 billion, followed by Germany at EUR 15.3 billion and China at EUR 12.4 billion. While some European countries saw a decline in organic sales, Canada and the US experienced growth in retail sales, with increases of 9.7% and 4.4%, respectively. These figures indicate that consumer interest in organic products is strong, particularly in North America, where health consciousness is driving demand.
Methodology
To compile our list of the 10 best organic food and farming stocks to invest in, we looked for the largest organic food and farming companies. We also reviewed our own rankings and consulted various online resources to compile a list of the best organic food and farming stocks. Next, we focused on the top 10 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s Q3 2024 database of 900 elite hedge funds. The 10 best organic food and farming stocks to invest in are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q3 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A bright, colorful display of fresh produce in a grocery store.
Sprouts Farmers Market, Inc. (NASDAQ:SFM)
Number of Hedge Fund Holders: 37
Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a prominent specialty retailer in the US, focusing on fresh, natural, and organic foods. With over 430 stores across 24 states, the company is known for offering a variety of healthy products, including organic, plant-based, and gluten-free options. Sprouts Farmers Market, Inc. (NASDAQ:SFM) is one of the best organic food stocks to invest in.
In the third quarter of 2024, the company reported impressive financial results, with net sales reaching $1.9 billion, marking a 14% increase from the same period in 2023. A significant highlight for Sprouts Farmers Market, Inc. (NASDAQ:SFM) is its focus on organic produce. Organic items now account for over 46% of total produce sales, reflecting a growing consumer preference for healthier options. This shift has helped Sprouts Farmers Market, Inc. (NASDAQ:SFM) differentiate itself in a competitive market.
The company also opened nine new stores during the third quarter, contributing to its expansion plans, which include nearly 110 approved new stores in the pipeline. For 2024, Sprouts Farmers Market, Inc. (NASDAQ:SFM) now expects to open a total of 33 new stores, a slight adjustment from its previous guidance of 35. This change is primarily due to the effects of Hurricane Milton, and the company has chosen to postpone the opening of two stores in Florida until the first quarter of 2025.
E-commerce sales have also surged by 36%, representing 14.5% of total sales for the third quarter. This growth indicates that Sprouts Farmers Market, Inc. (NASDAQ:SFM) is effectively meeting the increasing demand for online shopping options among health-conscious consumers. With its strategic focus on organic products, robust sales growth, and commitment to expanding its store footprint, Sprouts Farmers Market, Inc. (NASDAQ:SFM) presents an attractive investment opportunity in the organic food sector.
As of the third quarter of 2024, SFM was held by 37 hedge funds, according to Insider Monkey’s database. First Pacific Advisors stated the following regarding Sprouts Farmers Market Inc. (NASDAQ:SFM) in its “FPA Queens Road Small Cap Value Fund” third quarter 2024 investor letter:
“Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a grocer focusing on fresh, natural and organic products. The company has best in class margins, attractive returns on capital, great new store economics, and is accelerating unit growth from 12 stores a year to 35 stores in 2024 on a base of roughly 400 stores. Over the past year, the stock has performed well after reporting strong operating results and from a low initial valuation. The stock price jumped when the company reported 2023 Q4 results and gave strong 2024 guidance. The share price jumped again when they reported 2024 Q2 numbers. We have largely maintained our position and allowed it to appreciate, only beginning to trim in 2024 Q3. Although SFM’s share price has increased faster than bottom-line results, we believe SFM still trades in the “range of reasonableness” for a high-quality, non-cyclical franchise that can reinvest capital at attractive rates of return.”
Overall, SFM ranks 3rd on our list of the best organic food and farming stocks to invest in. While we acknowledge the potential of SFM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SFM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.