Although cutting-edge technology tends to attract the majority of investors' attention in today's market, it's sometimes the boring businesses that can provide truly exceptional returns.

Sprouts Farmers Market (SFM 0.55%) and Callaway Golf (MODG -1.42%) are two companies that don't generate a lot of headlines, but they possess proven business models with long runways for growth while trading at compelling valuations. 

Person with protective gloves grabbing fresh produce.

Image source: Getty Images.

Sprouts Farmers Market

Sprouts Farmers Market is a grocery chain operating 363 stores primarily in the western and southern United States with a focus on fresh produce. Unlike traditional grocers, Sprouts Farmers Market has smaller stores (about 30,000 square feet) with unique layouts and low displays intended to replicate the experience of a farmer's market.

Over the last 12 months, the company generated $6.28 billion in revenue and $370.1 million in operating profits. While Sprouts has seen its sales per store grow slowly since the new management team took over in 2019, the pandemic fueled a temporary acceleration in sales as more consumers opted to cook at home instead of eating out. This temporary boost has made the most recent quarter's annual comparisons appear worse than what investors should expect moving forward.

In fact, management looks set on accelerating growth by opening 13 to 20 new stores in the coming six months. Beyond that, the company has also laid out a long-term strategy to increase its store count by 10% per year starting in 2022. To help make this store count growth more feasible, the company added two new distribution centers in Colorado and Florida during the second quarter. These centers should help Sprouts reduce delivery costs, diminish driving time, and improve overall produce freshness. 

But it's not just the store count growth that shareholders should be excited about. As a part of its long-term strategy, Sprouts is even planning to reduce its average store size by roughly 20%. This reduction means new locations will be less expensive to build and operate, resulting in higher profit margins for the company, assuming sales per store can stay consistent. When providing commentary on the reduced store size, CEO Jack Sinclair stated:

The smaller size is very efficient and keeps produce at the heart of the store while maintaining our familial open layout and treasure hunt shopping experience. They also cost 20% less to build, and we expect to have similar sales to our boxes that we have to date, resulting in expected higher returns.

Given the company's current valuation of less than eight times its trailing-12-month operating income, Sprouts Farmers Market could be a great fit for any investor's portfolio. 

A view from the driving lanes at the Topgolf location in Baton Rouge, Louisiana

Image source: Topgolf.

Callaway Golf

Callaway has traditionally been a golf equipment and apparel company. However, last year, the company announced it would be merging with the sports and entertainment business Topgolf. This $2.6 billion all-stock acquisition should help supercharge growth for the company for a few reasons.

First, Topgolf's core venues provide a unique, family-friendly experience that anyone can enjoy. Groups can hang out in their own lounge areas and order food or drinks, all while enjoying a tech-enabled driving range. Topgolf entered the year with 61 total venues across the globe, and it's on track to grow that number to 70 venues by year end. But beyond 2021, Callaway's management team seems to have much more audacious goals. 

During Callaway's 2020 investor presentation to discuss the merger, management claimed it sees a long-term path to more than 450 total Topgolf venues worldwide. While this will undoubtedly take some time to build out, the path appears much more realistic now that Topgolf gets access to Callaway's more than $400 million in cash on its balance sheet.

Additionally, as a part of the Topgolf acquisition, Callaway now owns the Toptracer technology. Toptracer, which is well known for tracking the flight path of golf balls on TV, also sells its technology to traditional driving ranges to garner revenue. Each bay with Toptracer installed can generate roughly $2,000 of revenue annually, and management estimates it can install the technology in 8,000 or more bays every year -- totaling an additional $16 million in annual revenue.

While the Topgolf business certainly introduces some new and exciting growth to Callaway, the company's core equipment and apparel operations are still expected to generate about $250 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2021. These earnings should provide some stability for Callaway as a whole and enable the company to further invest in its Topgolf expansion. 

However, despite the promising future that this business combination presents, Callaway stock is still only valued at just 15 times its adjusted EBITDA estimate for the year. For investors with a long time horizon, this presents a great opportunity to buy a quality business.