Is Bark Stock A Buy? Pet products company Bark (NYSE:BARK) is an inexpensive play on the trend of rapidly rising spending on pets in America.
Bark is an innovative company in an industry that seems to be exploding. It is an eCommerce provider of dog-related products and services. The company is best known for BarkBox, its widely popular subscription box.
Bark also sells its branded products through a variety of retail and eCommerce partners, including Amazon. Bark also sells treats for dogs. The company has begun selling breed-specific dog foods, with foods formulated for three breeds currently available.
Bark Revenue, Earnings and Growth
In the most recent quarter, Bark’s revenue rose to $131.2 million. This represented year-over-year growth of 12 percent and also exceeded the company’s forward guidance of $130 million for the quarter. The average value of each order the company fulfilled also rose 6 percent.
Net income, however, remained negative. The company lost $0.12 per share, compared with $0.09 last year. While this did beat out analyst expectations of -$0.13 per share, these advancing losses could become a serious problem for Bark if they continue.
Source: Pixabay
One of the strongest drivers of revenue growth was Bark Bright, the company’s dental care kit for dogs. Revenue from Bark Bright rose 169 percent, significantly faster than the overall rate of growth.
While Bark continued to add new subscribers to its BarkBox service last quarter, the rate of additions slowed from a year earlier.
Last quarter, Bark added 259,000 new subscribers, compared to 280,000 in 2021. Despite the quarterly revenue beat, management did not increase its full-year guidance for the fiscal year. Bark expects to bring in $556 million in revenue in FY 2023.
Bark Target Price
Bark’s median 12-month price target from analyst forecasts is $11.33, up nearly 520 percent from its most recent price of $1.83.
Investors should, however, treat this projection with caution due to the limited number of analysts making forecasts for Bark.
Indeed, the stock maintains a consensus buy rating on the basis of only one analyst rating the stock. While even the lowest price target of $8 would give Bark massive upside, it’s wise to treat such optimistic numbers with skepticism.
Bark Risk Factors
The biggest risk factor surrounding Bark from an investment perspective is its probable overvaluation. While its price-to-book and price-to-sales ratios are reasonable at 1.56 and 0.62, respectively, the company is bleeding cash. With a cash flow of -$0.44 per share, even Bark’s seemingly low share price may be too high.
Bark also has relatively low institutional ownership, potentially indicating that it is perceived as too risky by large, professional investment companies.
At present, only 32.4 percent of Bark’s outstanding shares are owned by institutional investors. It should be noted, however, that institutional buying has sharply outweighed institutional selling over the last 12 months.
As noted in the most recent quarterly report, Bark’s cost of customer acquisition is also rising. Each new customer cost the company $50.80, up from $48.36 the year before. While this increase is relatively modest, it could point to a problematic trend.
Rising acquisition costs could act counter to the rise in customer spending and extend the time needed for Bark to achieve profitability.
Rising inflation and lower consumer confidence could pose a risk for pet brands like Bark. While Americans have been spending more on their pets than ever before, it’s not yet clear how this trend will respond to an economic downturn.
With the prices of pet food and veterinary care rising steadily, pet owners may be inclined to cut back on new toys and accessories in favor of more essential expenses.
Bark will still likely be able to capitalize on treats and foods, but consumer spending in other areas could slow as the economy cools.
A final risk factor investors should be aware of is the stiff competition Bark faces from other pet supply sellers.
Brick-and-mortar retailers, especially Petsmart, have an inherent edge when it comes to providing pet-related services.
Online marketplaces such as Amazon carry many brands of dog-related products. While Bark does have a bit of a moat by virtue of its subscription model, this competitive advantage may not be enough to protect it in an increasingly competitive marketplace.
Is Bark a Buy?
Bark’s investment thesis is a complex one that features both strong positive and negative points.
On the upside, Bark is clearly a play on a massive and rapidly growing market. Americans spent over $110 billion on their pets last year, and dogs are by far the most popular pet in the US.
Pet owners increasingly think of and treat their pets as family members, and many are clearly willing to spend generously on their furry friends.
There are also positives to be found within Bark’s reporting. Bark Bright, for example, is a rapidly growing revenue stream that could help the company significantly gong forward.
Direct-to-consumer revenue, which offers higher margins than revenue from retail or eCommerce partners, also grew 12 percent in the most recent quarter.
On the downside, Bark is clearly a distressed company in its current state. Revenue growth last quarter was modest, while losses extended beyond last year’s level. The company’s gross margin has also contracted slightly from 59 percent last year to 58 percent this year. Coupled with risks from a potential economic slowdown, these figures make Bark’s future quite uncertain.
At the end of the day, Bark epitomizes high-risk, high-reward investments. This stock has at least the potential to pentuple this year.
Its lack of profitability and strong negative cash flows, however, make it a risky venture. Some very risk-tolerant investors may want to take small positions in Bark in hopes of realizing outsized gains. For the vast majority of investors, however, Bark is simply too risky to recommend as a serious investment.
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