Silver Ring Value Partners, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. At the end of the fourth quarter of 2021, the portfolio was very attractively priced, with the Price to Base Case value ratio at 54%. The portfolio had 15 investments plus hedges, cash at 1%, and option-adjusted net exposure at 71% at the end of the quarter. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Silver Ring Value Partners, 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 $3.2 billion market capitalization. SFM delivered a -1.89% return since the beginning of the year, while its 12-month returns are up by 33.09%. The stock closed at $29.12 per share on February 19, 2022.
Here is what Silver Ring Value Partners has to say about Sprouts Farmers Market, Inc. in its Q4 2021 investor letter:
“If you look at the Thesis Tracker earlier in the letter, you will notice that SFM has moderately missed my expectations for two quarters in a row. Specifically, the company’s 2-year comparable store sales remain slightly negative, and their store growth remains depressed vs. my expected long-term trajectory. Offsetting these negatives is the fact that Gross Margins have been holding up well.
The management’s thesis on their turnaround plan was that they had a very small, ~ 6%, group of customers who cared about deep discounts. These customers were unprofitable, and the pressure on overall Gross Margins wasn’t worth their business. So getting rid of deep discounts and increasing Gross Margins would be overall accretive to business value as this small group leaves and is replaced over time by better customers.
The problem with having a negative two-year comparable sales growth number at this point, is that it is becoming harder and harder to explain it purely by the run-off in this small group of unprofitable bargain hunters. With well over a year having passed since the change in pricing strategy, shouldn’t this group have already left? So either there are other issues that are causing share losses among the desirable customers, or the company’s management hasn’t been able to fine-tune its marketing yet to attract new, good, customers in sufficient numbers to grow…” (Click here to see the full text)
Copyright: stocking / 123RF Stock Photo
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 21 hedge fund portfolios at the end of the third quarter of 2021, compared to 24 funds in the previous quarter. Sprouts Farmers Market, Inc. (NASDAQ: SFM) delivered a 12.78% return in the past 3 months.
In February 2022, 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.
