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Whole Foods vs. Sprouts Farmers Market: Which Is a Better Buy?

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Outlook for future growth

Both Whole Foods and Sprouts plan to continue driving growth through new store openings. While Whole Foods has a total of 30 new stores planned for its current fiscal year, Sprouts has 36 new openings planned in the next year. How is this outlook expected to affect revenue and profit going forward?

Metric Whole Foods Sprouts
Current fiscal year expected revenue $16.0 billion $4.2 billion
Percent change over last year 3.9% 16.7%
Current fiscal year expected earnings $519.4 million $145.5 million
Percent change over last year (3.1%) 12.8%
Planned percentage increase in store count this year 6.9% 16.6%
Expected same-store sales growth this year (1%) 5%

Chart data from Whole Foods and Sprouts Farmers Market quarterly earnings reports, and Yahoo! Finance.

If results in the coming year are in line with expectations, Sprouts will again be the growth leader over Whole Foods. Both total revenue and bottom-line profit are expected to increase by double digits again, driven by aggressive new store openings and strong same-store sales growth.

Whole Foods, on the other hand, is slowing its new store openings. In the last reported quarter, the company admitted that business growth is growing increasingly dependent on same-store sales growth. With that figure expected to be flat at best, the chance for a rebound in profit growth in the short term is unlikely.

Which is the better buy?

Even though Sprouts is the growth story here, that doesn't necessarily mean investors should be ready to jump onboard. What are the current stock valuations for each company, and are future business expectations priced in accurately?

Metric Whole Foods Sprouts
One-year forward price-to-earnings ratio 21.4 30.7
One-year earnings growth expectations -3.1% 12.8%
One-year PEG ratio -6.9 2.4
Five-year forward price-to-earnings ratio 21.1 29.7
Five-year earnings growth expectations 5.7% 16.8%
Five-year PEG ratio 3.7 1.8

Chart data via finance.yahoo.com.

This graph paints an ugly picture for Whole Foods shareholders. It's important to bear in mind that the company has a good track record of growing profit (it's averaged almost 12% growth in each of the past five years), so we could conclude that this is just a short-term problem. In fact, over the next five years, the company is expected to resume growth at a mid-single-digit pace.

Despite longer-term optimism for Whole Foods, Sprouts looks like a comparatively better buy at these levels. Without some of the near-term profit shrinkage headwinds and strong business growth momentum, the smaller natural-food grocer looks like a value, with a five-year PEG ratio half of Whole Foods'. For investors looking for a growth story in the years to come, I would choose Sprouts Farmers Market.

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The article Whole Foods vs. Sprouts Farmers Market: Which Is a Better Buy? originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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