Pet ownership stateside is on the rise, and pet owners spare no expense when it comes to their much-loved companions. Therefore, it’s appropriate to look at three pet stocks that deserve your attention and further research.
According to the American Pet Products Association, around 70% of U.S. households own a pet (or over 90 million households). The industry could reach $110 billion this year. In 2020, it was $103.6 billion.
The pet market comprises products and services, ranging from food to medicine, insurance, grooming, training, and clothing. In 2020, pet food was the highest selling item with $42 billion. Vet care was next in line ($31.3 billion).
More than 69 million U.S. households have dogs, the most widely owned type of pet. Cats and freshwater fish rank in second and third places, with around 45.3 million and 11.8 million households owning them. Hence, dry dog food is the highest selling product type within the pet food segment, followed by dry and wet cat food.
With that information, here are three pet stocks that could be purr-fect additions to long-term portfolios:
Pet Stocks: Chewy (CHWY)
52-week range: $51.25–$120
Most pet owners will know of the Dania Beach, Florida-based Chewy. It is a leading e-commerce group, focusing on pet food as well as supplies and medicines.
For financial reporting, the company’s fiscal year ends on Feb 2. Chewy issued second quarter 2021 financials at the beginning of September. Revenue saw 26.8% year-over-year growth, and reached $2.16 billion. Net loss was $16.7 million, including share-based compensation expenses of $25.6 million. Diluted loss per share for was 4 cents vs a loss of 8 cents in the same quarter a year ago.
Management now expects to generate $2.2 billion to $2.22 billion in sales in the third quarter, implying a 23% to 25% year-over-year growth. Chewy’s top-line guidance is at $8.9 to $9 billion for the whole year, leading to an increase of 25% to 26%.
Year-to-date, CHWY stock is down over 15%, but still up about 40% in the past 52 weeks. The shares hit an all-time high of $120 in February, but have come under pressure since then. In other words, pet shares like Chewy were among the ”pandemic trades” that have come off the dizzying heights of the past year.
The stock’s price-sales ratio stands at 3.97x. Potential investors could regard this year’s decline in the stock price as a good opportunity to buy CHWY stock.
52-week range: $101.35–$186.98
Secaucus, New Jersey-based Freshpet manufactures fresh meals and treats for dogs and cats. Pet owners can buy these products online and at retail groceries in the U.S., Canada, as well as several other international markets.
Freshpet issued Q2 financials at the beginning of August. Net sales increased 35.8% from a year ago to $108.6 million. The net loss was $7.5 million, compared to net income of $200,000 for the prior year period. The diluted loss per share came at 17 cents. The company ended June with $280.3 million cash and equivalents.
Management revised its previous guidance of $430 million net sales to $445 million for the full year 2021. The Street is wondering whether the company can continue to differentiate itself by offering premium, and hence expensive, products as part of the “pet-humanization” trend.
So far in 2021, Freshpet shares are up 2% and saw a record high of $186.98 in May. Now, they are around $150. The company is trading at a forward price-earnings (P/E) multiple of 185x and at 16.3x on a P/S basis. Put another way, FRPT stock is overvalued.
Interested readers should wait for a further pullback in the shares of the premium pet food manufacturer, possibly toward the $135 level or even below.
Pet Stocks: ProShares Pet Care ETF (PAWZ)
52-Week Range: $55.19 – $84.20
Expense ratio: 0.5% per year, or $50 annually on an investment of $10,000
Our final discussion centers around an exchange-traded fund. The ProShares Pet Care ETF gives access to companies that capitalize on the increase in pet ownership.
PAWZ, which has 31 holdings, started trading in November 2018. The top 10 names make up about 67% of net assets of $323 million. Put another way, the fund is top heavy.
In terms of subsectors, we have veterinary pharmaceuticals (21%), followed by veterinary diagnostics (14.5%), internet pet and pet supply retail (12.5%), pet and pet supply stores (9.4%) and others. Around two-thirds of the businesses come from the U.S. Next in line are companies from the U.K., Switzerland, Germany, and France.
The fund returned close to 12% in 2021 and hit a record high in late July. Interested readers would find better value around $77.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.