Dive Brief:

• Jana Partners has sold its stake in Sprouts Farmers Market, according to a 13F filing with the Securities and Exchange Commission, and reported by Seeking Alpha.
• The hedge fund founded by billionaire Barry Rosenstein purchased about 593,000 shares of Sprouts in this year’s second quarter.
• Jana also recently picked up 600,000 shares of Blue Apron, representing a 2% stake in the troubled meal kit company. This spring, Jana bought a 9% stake in Whole Foods and pressured the retailer to sell.

Dive Insight:

Jana has gained notoriety in recent months for some high-profile investments, including the 9% stake it acquired in Whole Foods and the 2% stake it recently bought in Blue Apron. Its Whole Foods stake turned into a $300 million profit once the grocer sold to Amazon (Jana had pressured Whole Foods to put itself up for sale). Its Blue Apron buy, meanwhile, was seen as a vote of confidence in the beleaguered meal kit company when it was announced in August.

It’s hard to say with any certainty why Jana made a quick exit from Sprouts. The natural and organic grocer was seen as an acquisition target following Amazon’s Whole Foods acquisition. Reports stated Albertsons and owner Cerberus Capital approached the grocer, but talks quickly faltered.

That speculation has cooled recently, however. Despite Sprouts’ attractive market positioning and growth potential, analysts recently interviewed by Supermarket News say that right now, the company isn’t a very good fit with the few large chains out there capable of buying it. Sprouts’ recent growth has no doubt put a high price tag on it, making it a steep investment in a very tight grocery market.

The Phoenix-based grocer’s financial results have been stellar of late. In its most recent quarter, Sprouts reported same-store sales growth of 4.5% and gross profit margins of 28.7%, an increase of 60 base points over the same period last year. Investments in private label, prepared foods and store service are projected to fuel growth, with plans to grow around 30 stores per year into the foreseeable future.

But some observers see Sprouts' market advantage — that is, low priced natural and organic products — eroding over the coming months and years. Amazon-backed Whole Foods stands to poach customers as it lowers prices and ramps up its online ordering platform. Mainstream grocers are also expanding their assortment of natural and organic groceries and produce, and lowering prices, too.

In a recent note to investors, Goldman Sachs analyst Christopher Prykull issued a sell rating on Sprouts for these reasons. He set a price target of $18, down more than $2 from where the stock closed yesterday.

"Unsustainable non-perishable pricing to likely drive gross margin lower, particularly as produce pricing only becoming more competitive," he wrote. "Sprouts has high exposure to markets suitable for online grocery and natural and organic sales are maturing and moving mass."