Natural Grocers by Vitamin Cottage, Inc. (NGVC) and Sprouts Farmers Market, Inc. (SFM) are prominent grocery stores in the United States. NGVC operates natural and organic groceries and dietary supplement retail stores, including body care, pet care, household and general merchandise, and books and handouts. It sells organic products sourced from local producers.

SFM is a specialty retailer of fresh, natural, and organic food products. It sells various products categorized under perishable and non-perishable, including fresh produce, vitamins and supplements, grocery, meat and seafood, bakery, dairy, body care, and natural household items.

Enhanced online presence and pickup/delivery services have helped grocery companies rebound from their pandemic lows last year. Despite the high inflation this year, inelastic demand for grocery products should help companies in this space stay afloat.

Moreover, grocery stores have been introducing fresh and organic products to keep pace with the changing consumer tastes. The global food and grocery retail market is expected to grow at a 3% CAGR to reach $14.78 trillion by 2030.

While SFM gained 1.7% over the past week, NGVC surged 4.9%. NGVC is a winner with 52% gains over the past nine months versus SFM’s 12.2% returns. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

For fiscal 2022 second quarter ended March 31, 2022, NGVC’s net sales revenue increased 4.9% year-over-year to $271.82 million. The company’s operating profit came in at $76.78 million, representing a 6.9% rise from the prior-year period. Its operating income came in at $8.86 million for the quarter, indicating a 32.2% year-over-year improvement.

NGVC’s net income came in at $6.36 billion, up 35.1% from its year-ago period. Its EPS came in at $0.28, indicating a 33.3% year-over-year improvement. As of March 31, 2022, the company had $28.89 million in cash and cash equivalents. 

For the fiscal 2022 first quarter ended March 31, 2022, SFM’s net sales increased 4.2% year-over-year to $1.64 billion. The company’s gross profit came in at $611.75 million, increasing 4.4% from the prior-year period. Its operating income came in at $119.64 million for the quarter, representing a 5.7% rise from the year-ago period.

SFM’s net income came in at $88.31 million, up 6.3% from the year-ago period. Its EPS came in at $0.79, indicating a 12.9% year-over-year improvement. As of April 3, 2022, the company had $324.30 million in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, NGVC’s net income, EPS, and total assets have increased at CAGRs of 39.5%, 39%, and 27.9%, respectively.

NGVC’s EPS is expected to increase 5.5% year-over-year in fiscal 2022, ending September 30, 2022. Its revenue is expected to grow 4.2% in fiscal 2022.

Over the past three years, SFM’s net income, EPS, and total assets have increased at 18.9%, 23.2%, and 4.6% CAGRs, respectively.

Analysts expect SFM’s EPS to increase 1.9% year-over-year in fiscal 2022, ending December 31, 2022. Its revenue is expected to grow 3.9% year-over-year in fiscal 2022. 

Valuation

In terms of trailing-12-month Price/Sales, SFM is currently trading at 0.48x, 37.1% higher than NGVC’s 0.35x. In terms of trailing-12-month Price-to-Book, NGVC’s 2.45x compares with SFM’s 2.82x.

Profitability

SFM’s trailing-12-month revenue is 5.7 times that of NGVC’s. Moreover, SFM is more profitable, with a 36.4% gross profit margin versus NGVC’s 32.5%.

Furthermore, SFM’s ROE, ROA, and ROTC of 25.2%, 7.3%, and 8.6% compare with NGVC’s 19.2%, 3.7%, and 4.4%, respectively.  

POWR Ratings

While NGVC has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, SFM has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both NGVC and SFM have a B grade for Value, which is in sync with their lower-than-industry valuation ratios. NGVC’s 17.30x non-GAAP forward P/E is 5.8% lower than the 18.37x industry average. SFM’s 12.10x non-GAAP forward P/E is 34.1% lower than the 18.37x industry average.

NGVC has been graded a B in terms of Growth, which is in sync with its higher-than-industry growth rates over the past year. NGVC’s EBITDA has grown 22.7% over the past year, 232.9% above the industry average of 6.8%. SFM’s C grade for Growth reflects its negative EBITDA growth.

Of the 38 stocks in the A-rated Grocery/Big Box Retailers industry, NGVC is ranked #1, while SFM is ranked #14.

Beyond what we have stated above, our POWR Ratings system has graded SFM and NGVC for Sentiment, Quality, Stability, and Momentum. Get all NGVC ratings here. Also, click here to see the additional POWR Ratings for SFM. 

The Winner

Despite high inflationary pressure, the inelastic demand for grocery products should allow grocery retailers NGVC and SFM to stay afloat. However, a relatively lower valuation makes NGVC a better buy here.

Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Grocery/Big Box Retailers industry.

NGVC shares were trading at $16.50 per share on Tuesday afternoon, down $0.11 (-0.66%). Year-to-date, NGVC has gained 17.14%, versus a -19.06% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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