Sprouts Farmers Market: Counterweight (Ticker: SFM)

Playing the foil to the commoditized grocery market.

Today, I bring readers an update on Sprouts Farmers Market.

Below is the upcoming schedule for Emerging Moats. Reports include Nelnet (full research report), Grupo OMAB (quarterly update), and Wix (quarterly update) in the next three weeks.

I have made my writing plan for July, which you can see below. An overdue introductory report on BBB Foods is in the works. These are subject to change for any emergency posts, but I want to generally adhere to the schedule since some paid readers churn on and off for a month at a time. Switching up the entire writing plan a week before would amount to rug-pulling you.

Also, expect periodic trading updates. All trades will be disclosed before I make them, and are for paying subscribers only.

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Owning uncorrelated assets is beneficial. Plain and simple. Besides diversification advantages, it allows you to shift your portfolio to optimize after-tax returns, provides buying opportunities at all times, and can maximize absolute returns through the cycle. A year like 2026 may trick people into thinking the last point is incorrect (you need to chase the current hot thing or risk being left behind!), but this does not ring true through bear markets. Let the growth-at-any-price investors who drew down 80% in 2022 tell you firsthand the downsides of going all in on the hot thing of the moment.

You might wonder why I cover Sprouts Farmers Market – a grocery store concept – in a newsletter that focuses on emerging moat opportunities. Sprouts does have an underappreciated moat, but it is the stock’s uncorrelated or even inverse correlation to the US-AI bull market that makes it doubly fascinating to follow. Just as its health-focused grocery concept is a counterweight to big-box brands, its stock can be a nice counterweight in a growth-focused portfolio.

I have noticed that Sprouts and Philip Morris International generally trade in the opposite direction to the US indices. If Nvidia is up, Sprouts is down. I learned how beneficial this can be a year ago when rotating a soaring Philip Morris International into Airbnb and IBKR during the tariff tantrum. It was, without a doubt, my best trade of the year.

I could see the same happening to Sprouts one day. The stock remains off 52% from all-time highs, reporting what looked like sluggish Q1 results. Analysts are laser-focused on next quarter’s comp sales and the impact of inflation in 2026. I think we had three questions on the earnings call about whether fuel would have a 20-basis-point or 15-basis-point impact on gross margins this quarter. You know, the important stuff.

My analysis remains focused elsewhere: whether Sprouts can maintain its high return on invested capital (ROIC) and the size of its reinvestment runway. Add in capital returns, and the simple puzzle of valuing Sprouts Farmers Market stock is complete.

On this update, I will cover:

• Lapping a strong 2025

• A simple long-term growth algorithm

• Is there still an emerging moat?

• My investment decision

Lapping a strong 2025