Why Sprouts Farmers Market Stock Rocketed Higher This Week

Shares of Sprouts Farmers Market (NASDAQ: SFM) shot up as much as 18.7% this week, according to data from S&P Global Market Intelligence . The health grocery chain reported earnings for the second quarter of 2024 that beat Wall Street's expectations. Up over 100% this year, the stock is crushing the broad market indices, and it's up close to 500% in the last five years.

As of the market close on Thursday, Aug. 1, the stock is up 16.2% since Friday's close. Here's why shares of Sprouts Farmers Market popped once again this week.

Accelerating comp sales, expanding margins

In Q2 2024, Sprouts Farmers Market posted revenue growth of 12% year over year. This was driven by opening new stores and comparable sales growth -- growth from existing store locations -- of 6.7%. 6.7% is a huge acceleration from prior quarters, and it's the best comparable sales figure Sprouts has put up since the COVID-19 pandemic era. Accelerating comparable sales growth likely pleased Wall Street, sending the stock ripping higher this week and over $100 a share.

On top of fast revenue growth, Sprouts expanded its profit margin in the second quarter. Operating margin popped to 6.7%, up from 5.9% a year ago. Add everything together, and earnings per share ( EPS ) grew by 32% year over year to $0.94. After such strong momentum, Sprouts Farmers Market stock shot up over 10% in the days following its earnings release.

The company is winning due to its low-cost healthy food model. Its wealthier customer base is more resilient to a spending slowdown that is occurring with poorer shoppers. Health food advocates and those with special dietary needs are flocking to Sprouts locations to get the food they can't get anywhere else. Foot traffic is growing at Sprouts locations, and the company is expanding to new markets like Florida and Texas.

Is the stock a buy now?

At the end of last quarter, Sprouts Farmers Market had 419 store locations. It thinks it can grow its store count for many more years, with room for more than 1,000 locations just in the United States. This gives the company a long runway to reinvest back into its operations.

After its recent stock pop, shares trade at a price-to-earnings ratio (P/E) of 31.5, which is a five-year high. The stock is not dirt cheap anymore, but it has plenty of room to grow earnings over the next decade. If EPS keeps growing at 32% year over year, Sprouts Farmers Market is probably a buy at $100 a share.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Sprouts Farmers Market. The Motley Fool has a disclosure policy .