These 2 actions are stars in the making

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While high tech companies tend to capture the majority of investor attention in today’s market, there are many less attractive companies with long avenues for growth that are trading at attractive prices. Two of these companies are Sprout farmers market (NASDAQ: SFM) and Nelnet (NYSE: NNI).

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Sprout farmers market

Sprouts Farmers Market is a health-focused grocery chain that operates 363 stores across the United States. displays and a product-centric layout.

Starting in 2019, Sprouts embarked on a new strategy led by recently hired CEO Jack Sinclair. The main objectives of the strategy focused on cleaning up the company’s balance sheet, preparing the ground for rapid store expansion and moving its target customers from coupon cutters to more health-conscious consumers. . So far, this plan seems to be paying off.

Over the past two years, Sprouts has reduced its long-term debt by approximately 50% while simultaneously increasing its cash balance by over 250%. Additionally, in the past 12 months, the company has opened two new distribution centers in Colorado and Florida. Sinclair said that with these two operational centers, “we now have 85% of our stores within 250 miles of our distribution centers.”

But distribution centers don’t just help existing operations by reducing delivery times and improving overall product freshness. They also serve as a focal point for new store expansion. With the latter now in place, management took advantage of the last quarterly conference call to reiterate its intention to increase the number of its stores by 10% from 2022.

While the big acceleration in store growth has been put aside for next year, the company is taking steps to maximize shareholder value in the meantime. Given that Sprouts shares are currently valued at just seven times its last 12-month operating profit, the company’s board of directors authorized a $ 300 million share buyback program in March of this year. At the company’s current market capitalization of $ 2.6 billion, exercising the full buyout would increase shareholders’ claim on the company’s earnings by more than 11%.

Whether it’s through more share buybacks or new stores, Sprouts looks set to deliver great returns for shareholders in the years to come.

Nelnet

Nelnet is a diverse conglomerate headquartered in Lincoln, Nebraska. Although the company operates calmly, its management team has demonstrated a remarkable ability to allocate capital. In fact, over the past 17 years, Nelnet’s book value (assets minus liabilities) per share has compounded at an annual rate of over 17%.

The business started out as a student loan management business, but eventually evolved into creating its own loans. For a long time, it was a lucrative place since the loans taken out under this particular program were guaranteed by the federal government, limiting the risk of the lender. However, around 2009, the federal government decided to take this deal in-house, leaving Nelnet with a massive portfolio of outstanding loans that had yet to be repaid.

Today, Nelnet continues to collect cash from this slowly shrinking loan portfolio and, according to the latest quarterly report, the company still expects to receive another $ 1.5 billion by 2026. With these significant With money coming in, management has and continues to redeploy money to its variety of other investments, most notably its segment known as “Nelnet Business Services” (NBS).

While the name doesn’t sound like much, it’s actually a stellar company. Comprised of nine distinct brands, NBS offers a range of educational software and different payment-related services. Together, NBS generated revenue of $ 311 million in the past 12 months – up 29% from the most recent quarter – with an operating profit margin above 30%. Based on management’s track record, investors should expect this segment to grow through further acquisitions as well, with management adding two new companies just last year.

But Nelnet also allocates capital elsewhere. Last year, she opened and launched a new bank in Salt Lake City, Utah, funding it with an initial sum of $ 100 million. In addition, the company has several other private investments ranging from venture capital initiatives to real estate and solar projects which are valued at over $ 500 million on Nelnet’s balance sheet.

Like Sprouts Farmers Market, Nelnet is currently trading at a 12-month operating profit of less than 10 times and management continues to repurchase its own stock periodically. All in all, Nelnet is a sustainable and diverse company led by competent management with a proven track record, and it trades at far too cheap a valuation.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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