Trade-Ideas: Sprouts Farmers Market (SFM) Is Today's

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Sprouts Farmers Market ( SFM) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Sprouts Farmers Market as such a stock due to the following factors:

  • SFM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $41.0 million.
  • SFM has traded 1.5 million shares today.
  • SFM traded in a range 215.4% of the normal price range with a price range of $1.43.
  • SFM traded below its daily resistance level (quality: 27 days, meaning that the stock is crossing a resistance level set by the last 27 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on SFM:

Sprouts Farmers Market, Inc. operates as a specialty retailer of fresh, natural, and organic food in the United States. SFM has a PE ratio of 41. Currently there are 6 analysts that rate Sprouts Farmers Market a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Sprouts Farmers Market has been 1.8 million shares per day over the past 30 days. Sprouts Farmers Market has a market cap of $4.5 billion and is part of the services sector and retail industry. Shares are down 14.3% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Sprouts Farmers Market as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including premium valuation, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 5.8%. Since the same quarter one year prior, revenues rose by 18.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SPROUTS FARMERS MARKET has improved earnings per share by 9.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SPROUTS FARMERS MARKET increased its bottom line by earning $0.70 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($0.87 versus $0.70).
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • The gross profit margin for SPROUTS FARMERS MARKET is currently lower than what is desirable, coming in at 31.91%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 4.36% is above that of the industry average.

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