Freshpet Stock Forecast: If you have “fur children“, you probably care about the food they eat. With all the reports in recent years regarding what actually goes into dog food, maybe you’ve considered making fresh meals for them every day.
But that’s a lot of work.
What if you could feed them farm fresh meals without the hassle?
Pet owner meet Freshpet.
Back in the late 19th and early 20th centuries, our pets at the same foods we ate – whether that meant leftover scraps or other foods we prepared for them specifically. Then around the 1950s, Purina and other pet food companies began producing dry chunk dog and cat foods.
While this came as a relief for many who’d been preparing their pet’s food up to this point, it was later discovered that pets weren’t getting the right balanced nutrition for their specific systems.
A lot of the nutrients found naturally in the ingredients used were all cooked off during the high-heat processing.
Today, a lot of the dry kibble you can find in the store is still made this way. Even though the introduction of natural dry food is a level above its predecessor, the cooking process still removes the nutritious parts of the ingredients in order to make bags shelf-stable for several years.
In 2006, Freshpet decided to revolutionize the pet food industry. Their idea was that humans feel better and are healthier overall when eating fresh, healthy food, so – don’t our pets deserve the same?
Freshpet’s process involves cooking natural, whole foods, but at much lower temperatures to lock in all the vitamins and minerals. They began producing fresh pet foods that require refrigeration – just like our food.
Freshpet = Farm-to-Bowl Food For Dogs & Cats
Freshpet is the first and only pet food manufacturer to make fresh, farm-to-bowl food for dogs and cats.
The company carefully sources all ingredients from farmers around the United States and then prepare all meals in their own kitchen – so you don’t have to.
All Freshpet foods are meant to be kept refrigerated so they reach you and your furry friend as fresh as the day it was made. Natural, wholesome pet food equals healthy and happy pets.
Is Freshpet Stock A Buy?
While Freshpet experienced a rather dire drop during the first coronavirus pandemic stock market crash, it soon bounced back to all-time highs.
The stock began to dip again a couple of months later, but – coincidentally – it wasn’t really related to the coronavirus. It had more to do with the fact that Freshpet didn’t hit their Q4 earnings projections – but they also further watered down their stock by issuing new common shares.
That said, current analysts are looking past this temporary dip and instead are focused on the company’s ongoing operations.
It was in mid-February that Freshpet announced plans for long-term growth strategies, such as increasing its production capabilities.
While this is certainly a plus, it’s going to be an expensive undertaking – to the tune of over $500 million. That might seem like a high hurdle – but this investment would mean a production capability increase of over a billion dollars.
That sounds nice – but when Freshpet made this announcement, its balance sheet only reflected $9 million. In short, the hill ahead is a steep one.
Near the end of April, the company announced additional funding of $165 million. Add this to over $200 million the company gained through those new common shares, and it appears it’s well on their way to long-term ideals and a sustainable business model.
Risks of Investing in Freshpet
Freshpet is based in Secaucus, New Jersey, and sells their products under various brand names, such as:
- Nature’s Fresh
- Dog Joy
The company’s eventual goal is to be the leader in the refrigerated pet food space, touting their products as the better alternative to current dry and canned foods.
Recent revenue results – such as a consistent year-to-year jump of at least 35% – suggest that customers of Freshpet already think so.
As an investor, however, it might behoove you to pay more attention to the fact that this company was founded in 2006 and, surprisingly, is still operating at a loss.
How or when will they break even or become profitable? Their desire to open more processing plants and triple the outlets they serve appear as great goals – but at the expense of profits in the short-term.
As of Q1 2020, expenses climb roughly 7% year-to-year, amounting to a $1.3 million operating loss. This is a result of costs – roughly 55% of revenue – exceeding gross margins of 48%. So, it might be too big of a risk for some investors to bite.
Will Freshpet Competitors Beat It?
Freshpet’s closest competition comes from other pet food and supply companies such as Blue Buffalo and Zooplus.
Blue Buffalo doesn’t yet have enough information for analysts to predict their stock outcome, but Zooplus is a high-ranking stock in Europe.
Zooplus’ market capitalization is listed at around $1 billion.
Freshpet Stock Forecast: The Bottom Line
Investors’ biggest concerns lie in earnings per share. Many analysts have lowered their previous estimates, meaning there could be rough waters ahead for this pet food company.
But analysts also confirm the company’s revenue numbers, which means sales are right in line with investor expectations. Price remains consistent, which suggests the overall value of the company has not taken a hit.
To see this in context, take a look at Freshpet’s past performance and how their competitors are faring currently. You can infer from estimates that future forecasts predict Freshpet’s trends will continue.
For instance, Freshpet’s revenue is expected to grow by 20% by 2021, and that’s basically in line with its usual annual revenue growth of 19% for the past five years.
When compared to other pet food companies, this is a great indication of the future, as other analysts predict other pet food companies’ revenue growth to hover around 2.1% each year.
So, while Freshpet’s growth rate is remaining level, it’s expected that this company will grow much faster than the overall pet food industry.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.