FPA Queens Road Small Cap Value Fund on Sprouts Farmers Market, Inc.
Thesis
Sprouts focuses on fresh, natural and organic groceries and has healthy operating margins, returns on capital and new-store economics. The fund trimmed when valuations rose and continued to hold through a collapse as growth slowed. At a low-teens forward earnings multiple, the portfolio managers are comfortable maintaining a mid-sized position.
“Today, SFM trades at a low-teens multiple of forward earnings”
Key risks
- Revenue growth has slowed
- Further valuation compression if forecasts decline
- Weak share-price sentiment after its collapse