The novel coronavirus pandemic has been a growth catalyst for the ever-evolving pet industry. Pet adoption has increased dramatically as millions of Americans were forced to retreat to their homes. All of this is compelling investors to look for the best pet stocks to buy.
The American Pet Products Association estimates that at least 67% of U.S. households own a pet. This number had grown by 11% since 1988, when the survey was first conducted. Additionally, the ProShares Pet Care ETF (CBOE:PAWZ) has grown by an impressive 30% compared to the S&P 500, which grew just 4% year-to-date.
Revenues from pet foods continue to bolster companies’ bottom lines compared to other pet products. Moreover, companies are looking at online channels in developing a competitive edge over their competition. Additionally, affluent pet owners, particularly the millennials, are buying more expensive pet products, such as organic food.
With that in mind, here are the best pet stocks to buy right now:
Let’s look at what makes each stand out.
Pet Stocks to Buy: Chewy (CHWY)
With lockdown restrictions in place, online pet supplies retailer Chewy is making some serious waves. Chewy’s digital storefront is a one-stop-shop for you to purchase pet food, toys and other supplies. This is perhaps why the 6-month total return for CHWY stock is at a mammoth 87%.
Revenues grew 46% in the first quarter, which is its strongest growth since it went public. It narrowed down its adjusted loss per share to 12 cents, which beat Wall Street’s expectations by 50%. The key revenue driver for the company was a 33% increase in active customers. Moreover, sales per active customer have also increased by 6.6%.
One of Chewy’s unique propositions is its Autoship option, which enables customers to replenish their pet food supplies at specific intervals. It now accounts for almost 70% of the company’s sales mix. Profitability appears to be a few years away, but currently, CHWY stock is a great investment for those targeting long-term growth.
Zoetis has been the crème de la crème as far as veterinary medicines and diagnostics are concerned. That also makes it one of the key pet stocks to watch today.
It was spun off by Pfizer (NYSE:PFE) in 2013, at a time when it was the bonafide leader in animal health. The 6-month total return for the ZTS stock is at a healthy 15%.
Revenues in the second quarter were at $1.5 billion topping Wall Street estimates of $1.36 billion. Net income was $377 million, which represented a modest increase from the $371 million it generated in the prior-year period. Additionally, Zoetis has revised its 2020 revenue outlook to fall between $6.30 billion and $6.47 billion from its previous guidance of $5.95 billion and $6.25 billion.
The company has invested heavily in the lucrative animal diagnostics market, which it says is worth more than $4 billion. It has recently sped up its mergers and acquisitions activity, with its recent acquisition of ZNLabs and Ethos Diagnostic Science. ZNLabs is an established supplier of veterinary lab services, while Ethos Diagnostic Science is a reputable diagnostics lab.
Therefore, there is a lot of depth in ZTS stock, which is trading at a 4% discount to its consensus price target of $163. With strong management in place and placement in a growing industry, ZTS stock is a solid investment option.
Freshpet is one of the first companies to explore the novel idea of refrigerated pet foods. The primary idea behind its business model is that some food offerings are healthier for pets compared to canned foods. The company has quickly grown its customer base from 1.8 million to 3.2 million in the past five years. Additionally, a 2018 company survey showed that 82% of its customers report a visible change in their dog’s health. Hence, the 6-month total return for FRPT stock is 54%.
Second-quarter results for the company have been rock solid with a 33.2% increase in revenues to $80 million year-over-year. Perhaps what was more impressive was its net income, which grew 79% to $0.2 million from a net loss of $5.7 million in the same period last year. Freshpet management’s 2020 outlook is looking rosy, with more than a 30% increase in revenues to $320 million.
Widening brand exposure is likely to boost the company’s chances of increasing its household penetration to eight million by 2025. Freshpet is investing heavily in its distribution, marketing and manufacturing competencies to keep up with its rampant growth. It recently issued 4 million shares, amounting to $252 million to fund its efforts. Hence, FRPT stock is a solid name among the other pet stocks to consider.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above. As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.