I have built a list of growing companies and the Sprout Grower Market (NASDAQ: SFM) has been successful

Like a puppy chasing its tail, some new investors often chase “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’

Contrary to all this, I prefer to spend time on companies like Sprout farmers market (NASDAQ: SFM), which not only has income, but also profits. While profit isn’t necessarily social good, it’s easy to admire a business that can consistently produce it. Conversely, a loss-making company has yet to prove itself with profit, and eventually the sweet milk of external capital can turn sour.

Sprouts Farmers Market earnings per share increase.

If you think the markets are even vaguely efficient, then in the long run you would expect a company’s stock price to follow its earnings per share (EPS). So it’s no surprise that I like to invest in companies with growing EPS. Impressively, Sprouts Farmers Market has increased BPA by 20% per year, compound, over the past three years. As a general rule, we would say that if a company can follow this kind of growth, shareholders will be smiling.

I like to see top line growth as an indication that growth is sustainable, and I look for a high profit margin before interest and taxes (EBIT) to indicate a competitive gap (although some companies with low margins also have ditches). It looks like Sprouts Farmers Market is pretty stable as both revenue and EBIT margins are pretty stable year over year. That’s not a major concern, but it also doesn’t indicate the long-term growth we like to see.

You can take a look at the company’s revenue and profit growth trend, in the graph below. To see the actual numbers, click on the graph.

NasdaqGS: History of SFM Revenue and Revenue December 29, 2021

As we live in the present moment all the time, there is no doubt in my mind that the future matters more than the past. So why not check out this interactive graph showing future EPS estimates for Sprouts Farmers Market?

Are Sprouts Farmers Market Insiders Aligned With All Shareholders?

I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. As a result, I am encouraged that insiders own shares of Sprouts Farmers Market of considerable value. Indeed, they hold 12 million US dollars of its shares. This shows strong buy-in and may indicate a belief in business strategy. Even though that’s only about 0.4% of the business, it’s enough money to indicate the alignment between the company’s executives and common shareholders.

Does Sprouts Farmers Market deserve a spot on your watchlist?

You cannot deny that Sprouts Farmers Market has increased its earnings per share at a very impressive rate. It is attractive. Additionally, the high level of insider ownership impresses me and suggests that I am not the only one enjoying the growth of BPA. So this is most likely the kind of business that I like to spend time researching, in order to discern its true value. However, before you get too excited, we found out 1 warning sign for Sprouts Farmers Market that you need to be aware of.

Of course, you can (sometimes) buy stocks that are not growing income and not have insiders who buy stocks. But as a growth investor, I always like to check out companies that To do have these characteristics. You can access a free list of them here.

Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.

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James V. Payne