$27.00
$96.00
bear $27.00
base $62.50
bull $96.00
margin of safety $34.00
market price* $65.20
Sprouts Farmers Market is a US grocer built around fresh produce, with 477 stores in 24 states at the end of 2025 (California 156, Texas 60, Florida 58, Arizona 48, Colorado 34). It leases every store. Sales were $8.8 billion in 2025, up 14%, and diluted earnings were $5.31 per share. How we measure earnings. We start from cash generated by operations, remove swings in inventory, receivables and payables, deduct stock compensation as a real cost, and deduct only the part of store-building spending needed to keep the existing base running. On that basis the business earned about $1.91, $2.94 and $4.62 per share in 2023, 2024 and 2025. The 2025 figure is well above the earlier ones, and 2025 profits also benefited from a higher gross margin (38.8% versus 38.1%). We use 2023 to 2025 as the reference window and take its middle value, $2.94, because from 2023 the company stepped up to 30-plus new stores a year and roughly doubled its annual store spending compared with 2021 and 2022. Years before that describe a different spending pattern. We do not use 2025 alone as the level, because the first half of 2026 has not confirmed it: sales grew 4.4% and net income fell about 7% (to $293 million from $314 million) versus the first half of 2025, while store spending rose to $190 million from $120 million. Growth. Owner earnings per share grew 57% in 2025. Our base case assumes only 4% a year for five years, then 2% a year for five years, and no growth after that. The 2025 jump came from margin gains and a lower share count and is not a pace we can rely on, and the first-half 2026 slowdown gives no specific reason to expect it to repeat. The 4% is supported by something the company has actually done: it opened 30, 33 and 37 stores in 2023, 2024 and 2025, funded from its own cash with no borrowings outstanding at year-end 2025, and it says it expects more than 40 openings in 2026. That is a small step on a base of 477 stores. We credit only a fraction of the roughly 8% annual store growth because the company itself warns that new stores earn lower margins than mature ones and pull some sales from nearby existing stores. We do not credit continued strong same-store sales growth (7.3% in 2025, 7.6% in 2024, but 3.4% in 2023), further margin gains, or the company's 10% unit growth target. Base case: about $62.50 per share. Earnings start at $2.94 and follow the growth path above, then hold flat indefinitely. Grocery stores that already exist and are already leased keep earning without new predictions, so the value continues after year ten, but we credit no growth beyond it. Bear case: about $27 per share. Earnings start at the weakest recent year, $1.91, and shrink 2% a year for ten years, then hold flat. This reflects the slowdown visible in the first half of 2026, food price deflation and promotions by competitors that the company names as risks, and sales transfer to new stores. The company had no borrowings at the end of 2025, so leverage is not part of this case, but the store leases are a fixed commitment that makes profit declines painful. Bull case: about $96 per share. Earnings start at $3.70, about halfway between the three-year middle value and 2025, on the view that the higher 2025 margins largely hold. They then grow 7% a year for five years, close to the pace of new store growth the company has delivered, and 4% a year for five more, then hold flat. What would make this wrong: if 2025's $4.62 proves to be the true earning power, the base case is too low; if the first-half 2026 profit decline deepens, the base case is too high. We could not reconcile the sharp rise in store spending in the first half of 2026 to a specific cause from the filing data we reviewed, so we treat it as growth spending for the 40-plus planned openings. The margin-of-safety price of $34 is set well below the base case because our bear case is close to it and the business is sensitive to store economics that have not yet shown their effect in 2026 results.