Should You Consider Investing in Sprouts Farmers Market (SFM)?

Silver Ring Value Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  The portfolio ended the quarter at an attractive Price to Base Case Value ratio of 60%, and all of the stocks in the portfolio were below 70% of Base Case value. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Silver Ring Value Partners, the fund mentioned Sprouts Farmers Market, Inc. (NASDAQ: SFM), and discussed its stance on the firm. Sprouts Farmers Market, Inc. is a Phoenix, Arizona-based supermarket company, that currently has a $2.9 billion market capitalization. SFM delivered a 25.37% return since the beginning of the year, while its 12-month returns are down by -6.80%. The stock closed at $25.20 per share on July 21, 2021.

Here is what Silver Ring Value Partners has to say about Sprouts Farmers Market, Inc. in its Q2 2021 investor letter:

“I increased Sprouts Farmers Market to a Medium position. I spoke about the company briefly in last quarter’s letter when I began building the position. It is a good example of the third investing pattern that I described earlier of companies with a long duration of above-average growth that is underappreciated by the market. I presented my investment thesis on the company at MOI Global’s 2021 Wide-Moat Investing Summit. I am attaching the presentation to give you a more in-depth perspective of how I am thinking about this investment.”


Based on our calculations, Sprouts Farmers Market, Inc. (NASDAQ: SFM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Sprouts Farmers Market, Inc. (NASDAQ: SFM) was in 21 hedge fund portfolios at the end of the first quarter of 2021, compared to 25 funds in the fourth quarter of 2020. Sprouts Farmers Market, Inc. (NASDAQ: SFM) delivered a  -5.08% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.