Is $3.3 Billion Pet Food Stock FRPT a Buy?

Hey guys, so I know this is a little different video from my last one where I talked about workhorse stock. But I wanted to give you some insight into how I research stocks and the steps I go through when evaluating a new stock. I also wanted to give some stock ideas to people who wanted less speculative stocks that still have high growth potential. So let me know what you guys think in the comments section. And if you have any stocks you want my opinion on.

Freshpet is up 86% on the year and is up over 1000 percent from its lows back in early 2016. So just by looking at the chart we can see that this is a company that has grown a lot over the past 5 years. And while this isn’t the type of company I would normally invest in. I do think that it could be a good growth stock that you should take a look at.

Why am I focusing on this stock when there are literally thousands of other stocks out there? Well one of the main reasons I like this stock is because of its name. I like company’s where the name is very descriptive of what the company sells. This helps brand awareness and make new investors more likely to purchase the stock since it takes very little research to understand what the company does. And understanding a company’s products and services is the first step when researching stocks to buy. After all when we invest in a stock we are loaning money to the company. That business will then use our money to invest into their products or services they provide. And if the products or services perform well in the marketplace, then the company and our money will grow. So basically if you invest in an individual stock without any understanding about the products the company makes then you are gambling. Plain and simple.

Freshpet is an american manufacturer of fresh, refrigerated food and treats for dogs and cats. And what is unique about freshpet is that they use all natural ingredients in their food. This is important because more and more people look at their pets as not just a pet but as a member of the family. And so the same trends we have been seeing in healthy, organic human food is spilling over into the dog and cat food market.

Now the next step in researching a stock is to look at the total addressable market for the product or products the company makes. Or in other words the total addressable market will show us the growth potential of the company. According to the APPA, which stands for the American Pet Products Association, there are 63 million households in the US that own at least one dog and 42.7 million that own cats. That’s a lot of pet owners in the US and I think that number will only keep increasing for the foreseeable future. In total, pet owners spent 90.5 billion dollars in 2018 on their pets and 95.7 billion last year. With estimates for 2020 coming in at 99 billion. That is a lot of money considering in 1996, pet owners in the US only spent 21 billion dollars on their pets. Of the 95.7 billion spent last year, 36.9 billion was spent on food and treats. And when we compare these numbers to Freshpet’s market cap of only 3.3 billion we can see that there is still a lot of room for growth.

Typically when evaluating stocks, I am looking for stocks that have a history of at least 20 percent revenue growth. Freshpet has been able to achieve 8 consecutive quarters of 20 percent revenue growth with 7 of those quarters coming in at over 25%. A lot of that growth has been driven by household penetration which was up 21 percent last year. However as these new customers mature, freshpet expects the amount of pet food they buy to go up. So customer retention will be important moving forward. But so far freshpet has executed well and has been able to retain a lot of customers.

Freshpet also has a good profit margin that is close to 50 percent while the food industry average is closer to 30%. So that is a good sign for the company.

Overall, Freshpet stock has a lot of momentum and I think this is a stock that should offer market beating returns over the next couple of years. Which is the goal of investors like you and me who invest in individual stocks.

9 Comments

  1. Kim Ballentyne on January 15, 2021 at 11:48 pm

    Many thanks for sharing. Pet industry is very strong. What about Trupanion (TRUP)?

  2. Tomsco Vids on January 15, 2021 at 11:51 pm

    Interesting, I’ll have to check this one out! Thanks!

  3. GodSavesisthetruth on January 15, 2021 at 11:54 pm

    Nice!

  4. Ivan Bliminse on January 15, 2021 at 11:55 pm

    What do you think of chewy?

  5. Sarah Hoover on January 15, 2021 at 11:56 pm

    I agree with you that understanding your investments is important!

  6. Craig Scott on January 16, 2021 at 12:04 am

    I loved it and I subscribed! A family member

  7. Mr. Dividend Investor - Let's Talk About Stocks on January 16, 2021 at 12:16 am

    New to this stock, definitely will check it out. Aloha 🤙

  8. Mike Smith on January 16, 2021 at 12:17 am

    I’ve been buying Fresh Pet for several years. You’re ignorant if you feed your pet dry kibble. Costco can’t keep the Fresh Pet in stock.

  9. Lxy Shen on January 16, 2021 at 12:34 am

    I subbed 🙂

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