More than 85% of the world’s population has switched to sustainable purchases over the past five years. As part of this, the demand for organic food has been rising, especially during the pandemic, because people have been adopting healthy eating habits to maintain their physical health while living sedentary, remote lives.
Furthermore, consumers are shifting toward organic foods amid rising chemical poisoning cases, cancer, and congenital disabilities due to the use of excessive chemical pesticides in crop production. Indeed, the global organic food market is expected to grow at a 14.6% CAGR over the next four years to $368.94 billion by 2026.
Given the backdrop, here are the top organic food stocks that we think are well-positioned to capitalize on the growing demand: Sprouts Farmers Market, Inc. (SFM), Natural Grocers by Vitamin Cottage, Inc. (NGVC), and Lifeway Foods, Inc. (LWAY).
Sprouts Farmers Market, Inc. (SFM)
SFM in Phoenix, Arizona is an organic food retailer that offers fresh, natural, and organic food products in the U.S. The company offers products that are categorized as perishable and non-perishable. The perishable product categories include meat, seafood, fresh produce, floral and daily, and non-perishable product categories include frozen foods, vitamins and supplements, grocery, beer and wine, and natural health.
On Nov. 22, 2021, SFM received an AAA rating in the 2021 MSCI ESG Ratings assessment. Regarding this, SFM chief legal officer and ESG Head Brandon Lombardi said, “Over the last two years, we’ve further refined our sustainability focus by partnering with third-party ESG advisors and conducting materiality assessments to understand the issues most important to our stakeholders…At Sprouts, we’re proud of the positive impact our business has on the environment, our team members, and the communities we serve.”
On Nov. 3, 2021, SFM introduced a pre-order option that allowed customers to reserve meals, meats, and trays online during the holiday season. This initiative is expected to have boosted SFM’s sales and profit margins over the last holiday season.
SFM’s income before income taxes increased 10.1% year-over-year to $82.90 million in its fiscal third quarter ended Oct. 3, 2021. Its net income improved 6% year-over-year to $63.87 million. And the company’s net EPS increased 9.8% from the year-ago value to $0.56.
A 1.62 billion consensus revenue estimate for the quarter ending March 31, 2022, represents 2.6% year-over-year growth. The Street expects SYM’s EPS to rise 0.6% per annum over the next five years. Also, SFM has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.
Over the past year, the stock has gained 35.1% in price to close yesterday’s trading session at $28.37.
SFM’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SFM has an A grade for Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #23 of 39 stocks. To see additional POWR Ratings (Growth, Value, Momentum, Stability, and Sentiment) for SFM, click here.
Natural Grocers by Vitamin Cottage, Inc. (NGVC)
NGVC is a Lakewood, Colo.-based organic food retailer that offers natural and organic groceries and dietary supplements in the U.S. The company sells organic produce, which it sources from local and organic producers. NGVC operates its retail stores under the Natural Grocers by Vitamin Cottage trademark.
This month, NGVC introduced a free Nutrition Education program, “21 days to a healthier you,” that includes in-store Nutritional Health Coaches (NHCs). The program is developed by nutrition education experts and focuses on empowering health. The customers who attend this series in-person or virtually will receive selected coupons for Natural Grocers Products. With increasing health consciousness among people amid the remote working culture, this incentive-based program is expected to boost NGVC’s customer reach and brand recognition.
Last month, NGVC announced the relocation of its Greeley, Colo., store to a renovated store in downtown Greeley. This larger store might attract a higher number of customers.
In the fiscal year 2021 fourth quarter, ended September 30, NGVC’s net sales increased 3.2% from the same period in 2020 to $272.65 million. And its gross profit grew 4.7% year-over-year to $75.79 million. Its adjusted EBITDA rose 30.9% from the same period last year to $17.80 million. And its income increased 93.3% from the year-ago value to $7.21 million. The company’s EPS doubled from the year-ago value to $0.32.
Analysts expect NGVC’s revenue for its fiscal 2022 to be $1.10 billion, representing a 4.2% year-over-year growth. In addition, the Street expects the company’s EPS to rise at a 5.1% CAGR over the next five years.
Shares of NGVC gained 29.3% in price over the past six months and closed yesterday’s trading session at $13.90.
NGVC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. NGVC has an A grade for Growth and Sentiment, and a B grade for Value, Stability, and Quality. It is ranked #1 of 39 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see an additional NGVC rating for Momentum.
Lifeway Foods, Inc. (LWAY)
LWAY produces fermented probiotic products in the U.S. and internationally. The Morton Grove, Ill., company’s primary product is drinkable kefir, a cultured dairy product. It also produces and markets European-style soft cheeses, cream, and other products, ProBugs kefir products designed for children, and other dairy products, including cupped kefir and Icelandic Skyr.
Last September, LWAY introduced a new product line of vegan-friendly products to its probiotic portfolio. The new products include plant-based Lifeway and Chocolate flavored kefir. This introduction of new products is expected to boost LWAY’s sales because these wellness drinks are expected to achieve robust growth based on a consumer trend regarding gut health.
In its fiscal 2021 third quarter, ended Sept. 30, 2021, LWAY’s net sales increased 13.5% year-over-year to $29.55 million, marking its eighth consecutive quarter of net sales growth. Its cash flow from operating activities increased 20.3% from the same period last year to $6.44 million.
Over the past month, the stock gained 5.5% in price to close yesterday’s trading session at $5.18.
LWAY’s strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system. LWAY has an A grade for Growth and a B for Quality, Value, Stability, and Sentiment. Among 49 stocks in the B-rated Food Makers industry, it is ranked #4. Click here to see the additional POWR Rating for Momentum for LWAY.
SFM shares were trading at $28.47 per share on Friday afternoon, up $0.10 (+0.35%). Year-to-date, SFM has declined -4.08%, versus a -7.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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