Arch Capital Projects a Bright Future for Sprouts Farmers Market (SFM)

Arch Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. Through the first 11 months of the partnership, the fund was able to deliver a 3.53%  return, compared to the S&P 500 Total Return Index, its core benchmark, which returned 30.02% for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Arch Capital, in its Q4 2021 investor letter, 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 with a $3.0 billion market capitalization. SFM delivered a -8.63% return since the beginning of the year, while its 12-month returns are up by 25.50%. The stock closed at $27.12 per share on January 31, 2022.

Here is what Arch Capital has to say about Sprouts Farmers Market, Inc. in its Q4 2021 investor letter:

“Given its strong performance to close out 2021, Sprouts Farmers Market finished the year as the largest holding in the fund. We are confident in Sprouts’ business potential and believe many investors are misguided by the current negative same-store sales numbers it has posted. These should abide in 2022 with COVID-19 impacts gone and further distance from 2019, when management decided to cut the cord on unsustainable customer discount programs.

Sprout’s has room to grow its store count by 10%+ a year (its stated plans) for the foreseeable future, has improved its operating margins each year since 2019, and is rapidly reducing its share count through share repurchases. The stock trades at a free cash flow yield between 8% – 9% with a path to steadily grow FCF/s each year. Even with shares up 40% in the last year, we still think there is plenty of opportunity for Sprout’s stock over the next five years plus.

We wrote a report on Sprouts Farmers Market this summer, which goes into more detail on our thesis for the stock. You can find the report here: https://www.archcapitalfund.com/letters”

Our calculations show that Sprouts Farmers Market, Inc. (NASDAQ: SFM) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. SFM was in 24 hedge fund portfolios at the end of the third quarter of 2021, compared to 25 funds in the previous quarter. Sprouts Farmers Market, Inc. (NASDAQ: SFM) delivered a 22.16% return in the past 3 months.

In September 2021, we also shared another hedge fund’s views on SFM in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

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