@luisg, ha sido leerlo y pensar en ti 
If you have been a reader for a while, you may recall that I purchased a small stake in Sprouts Farmers (SFM) stock about nine years ago. At the time, I liked the company because it had a small niche in the natural/organic grocer industry and had a strong following in California. It also had net profit margins of around 3% and was planning on large expansion throughout California. The stock was trading around 30x earnings, which I found attractive because the company was so small that future store rollouts and any uptick in the profit margins would cause the earnings to increase substantially so even P/E compression would not be an issue for the stock.
Well, if you looked at the scoreboard, i.e. the stock’s price, during the initial holding years, it would have appeared abysmal. The stock traded in the $30s in 2015, the $20s in 2016, 2017, 2018, 2019, before peaking back up into the low $30s in 2021 and 2022. The stock did not pay a dividend, so there was essentially a seven year period of no gains. Meanwhile, the S&P 500 increased approximately 85% inclusive of dividends.
Behaviorally, there could have been a temptation for an investor to see the dramatic underperformance, the stagnant stock price, and sell it and give up. Focusing on the stock price, however, understated the reality of what was occurring at the business performance level. Sprout was in the process of increasing its store count from 217 stores in 2015 to 386 stores by 2022 as it was expanding into Texas, Arizona, Florida, and Colorado, and was growing net profit margins to the 4% level as it rolled out distribution centers to keep costs in check. Profits per share increased from $.83 in 2015 to $2.39, for a 187% gain in the seven years. The stock price languished, as investors were valuing it at 12x earnings instead of 30x earnings, but the business was growing at a fine rate of 16.3% annually during this time frame.
Between 2022 and today, the investor community has decided to increase its assessment of Sprout and the stock now trades at $147. As the stock has climbed from approximately $30 to $147 over the past nine years, the compounding rate is now around 19% annually whereas the S&P 500 returned 14% annually. Cumulatively, that is 390% with Sprout versus 228% with the S&P 500. The catch, though, is that I made absolutely no capital gains on this holding from 2015-2022 and then all of the compounding occurred in the past two years.
Experiencing this phenomenon is part of the reason why I am in the “never sell” camp, but even without having these anecdotal experiences along the way, I came to the decision philosophically because the overwhelming academic literature demonstrates that investors “sell” decisions cause dramatic underperformance.
