Any pet owner – and that’s slightly more than 2 out of 3 Americans – can tell you that pets are big business. Acquiring a pet can range from free of charge for a puppy from a friend’s litter to upwards of $20,000 for a blue-factor yellow nape Amazon parrot, but that’s only the beginning of the costs. Last year, pet owners spent $30.2 billion on veterinary care and products, along with $19.8 billion on over-the-counter vet supplies and medications – and over $38 billion in pet food and treats. Overall, the US pet industry exceeded $99 billion in 2020, up from $90.5 billion in 2018.
It’s not just the US that spends heavily on pets; globally, the pet industry is expected to reach $358 billion by 2027. The strong growth in the industry has opened up new vistas for investors, especially investors interested in e-commerce. Online retail boomed last year, during the corona crisis, and the pet-centered sector was no exception.
So, we can open use the TipRanks platform to look up a couple of stocks that are gaining on the digital sector of the pet-care industry. These are buy-rated stocks with double-digit upside potential – and they’ve each gotten a recent thumbs up from an analyst ranked in the top 1% of Wall Street’s stock pros. Here are the details.
Original Bark (BARK)
We’ll start in the dog supply niche, which is more like the essence of mass appeal. Original Bark is an online distributor of dog-centered products, designing, making, and marketing its own lines of toys, treats, and wellness supplements. The company got its start in 2012, and today partners with big names like Target and Amazon.
Original Bark entered the public markets on June 2, after completion of a SPAC merger. SPAC, special purpose acquisition companies, are corporations that form with the purpose of buying out and taking public a privately held target company. Bark merged with Northern Star Acquisition Corp., in a transaction that brought the dog supply company approximately $427 million in new cash. Bark will use the cash infusion to expand its product lines and marketing operations.
In May, during the run-up to the SPAC completion, Bark announced its financial results for Q4 of fiscal year 2021, along with preliminary results for that full year. For the quarter, the company showed strong growth in several key metrics. Top line revenue was up 79% year-over-year, to $112.2 million; within that total, subscription revenue grew by more than 70%, reaching $3.5 million. The company reported 264,000 new subscription, for a 72.5% yoy gain.
For the full fiscal year 2021, new subscriptions grew 91% yoy, and subscription shipments increased 52% for the same period. Full-year revenues hit $378.6 million, for a 68% yoy gain.
Covering this stock for Canaccord Genuity is Maria Ripps, rated #64 overall among Wall Street’s analysts, who writes of BARK, “BARK differentiates its offering by collecting product feedback via 250K unique monthly interactions with dog parents and then leveraging that data not only to enhance product recommendations but also to inform design and development of future toys. The company produces its products in-house, which ensures highquality, strong brand association, and the potential for higher gross margins. BARK’s recent expansion into the food category should meaningfully increase its TAM, further improve unit economics, and extend its growth profile. Over time, we think investors will come to appreciate the low-churn, high-visibility subscription model and robust disclosures.”
Ripps gives BARK shares a Buy rating, with a $16 price target that suggests the stock has room for a robust 59% upside in the coming year. (To watch Ripps’ track record, click here.)
In its first few weeks as a publicly traded entity, Bark has attracted 3 positive analyst reviews – for a unanimous Strong Buy consensus rating. The shares are priced at $10.03 and their $15.33 average price target implies a one-year upside of 53%. (See Bark’s stock analysis at TipRanks.)
For the next stock on our list, we’ll broaden our view slightly, and shift from dog supplies to pet food generally. Freshpet is a maker of fresh pet foods – so fresh, that they need to be kept refrigerated at the retailer. The company’s dog and cat foods are developed in Freshpet’s own kitchens, using natural ingredients and small-batch cooking. Freshpet food prep mirrors its company mission, of providing the highest nutrition for customers’ pets.
Freshpet’s stock is up 82% in the last 12 months, a gain that has almost doubled the NASDAQ’s 43% gain over the same period. In February of this year, the company took advantage of its share price gains by conducting a public offering of shares, putting 2.1 million shares on the market at $143 per share. The offering raised $332.5 million in net proceeds.
In its most recently quarterly report, for 1Q21, Freshpet noted a 33% year-over-year increase in total net sales, to $93.4 million. The company’s net loss, however, expanded, growing from $3.6 million in 1Q20 to $10.9 million in 1Q21. The deeper loss was attributed to increased ‘selling, general, and administrative’ expenses during the quarter.
Despite the increased loss, Freshpet reported a sound balance sheet, with $341 million in available cash and cash equivalents, and no outstanding debt.
Peter Benedict, the Street’s #54 rated analyst out of 7,500, covers Freshpet for Baird, and sees the company as a trailblazer. He writes, “FRPT is a true ‘category creator,’ one that is disrupting the industry with a unique/innovative offering that holds powerful appeal for consumers, retailers, and (in our view) investors alike. With company-owned coolers in >22k retail locations and the only coast-to-coast refrigerated distribution network in pet, FRPT enjoys significant “first mover” competitive advantages.”
Benedict rates FRPT shares as Outperform (i.e., a Buy), and his $210 price target indicates confidence in a 30% upside for the year ahead. (To watch Benedict’s track record, click here.)
The Wall Street opinions on Freshpet are somewhat scattered. Of the 9 recent reviews on record, there are 6 Buys, 2 Holds, and 1 Sell, making the consensus a Moderate Buy. With an average price target of $193.22 and a share price of $161.19, the stock has an upside of 20% on the one-year time horizon. (See Freshpet’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.