Chewy vs. Freshpet: Which Stock is a Better Buy?
December 29, 2020 at 08:22 AM EST
One of the best ways for investors to make money is by finding secular themes that will persist for decades. Pet spending is one such category. In this sector, two of the best companies are Chewy (CHWY) and FreshPet (FRPT). Find out which one is better.
People are more than willing to shell out big bucks for their pets regardless of economic conditions. In fact, pet spending increased during the Great Recession, and it's likely to have kept trending higher even during the coronavirus recession. From pet food to toys, grooming, and even spas, there are plenty of spoiled furballs living a life of luxury on their owners’ dime.
The ever-growing obsession with pets is music to investors’ ears. There are plenty of pet-related stocks yet a couple emerges from the pack as industry stalwarts that have the potential to prove successful for years and decades to come.
The Case for CHWY
CHWY makes pet food delivery easy. CHWY customers shop from the comfort of home, merely having to walk out to their doorstep to obtain their packages, delivered promptly without exception. This online pet supplies retailer has quickly become a household name, providing pet owners with food, toys, treats, and other pet-related sundries with a few clicks and keystrokes. Even if the masses can return to their local pet stores without having to don a mask at some point soon, CHWY will continue to rake in the cash as its customers have gotten into the habit of convenient online ordering.
CHWY’s auto-ship feature is particularly appealing as it empowers customers to take advantage of an incredibly efficient subscription program that delivers pet food, treats, and other items at specific intervals. Aside from improved convenience, this autoship component also benefits customers in that it has a built-in discount. All in all, CHWY’s auto-ship component is responsible for more than two-thirds of the company’s sales.
CHWY’s active customers and sales per active customer are soaring, largely because of the pandemic. There is little reason to risk exposure to the virus and waste time driving to and from local pet stores when the same or better items can be ordered directly from CHWY’s site. Though CHWY might not be profitable for several years, the company has the potential to emerge as a power player in its industry.
Savvy investors will not wait until CHWY moves from the red to the black to invest in the company. As soon as businesses become profitable, their stocks tend to skyrocket as profitability is a clear sign the stage is set for significant returns in the years to come. If you have been waiting on the sidelines, don’t wait any longer. CHWY is worthy of your investment dollars today.
The Case for FRPT
If you have been feeding your dog or cat dry food for years, it is time to consider a change. FRPT makes it easy to spoil your furry friend, providing delicious cooled food stored in branded coolers and fridges. These coolers are positioned in supermarkets, superstore retailers, and even some convenience stores. FRPT is clearly the leader in gourmet pet food yet its offerings are fairly expensive and each must be refrigerated to prevent spoiling.
FRPT's primary selling point is that refrigerated foods tend to be healthier and tastier than dry food. Indeed, more than 80% of FRPT customers indicate they have noticed a positive change in their furry friend’s health after implementing FRPT offerings. If all goes as planned, FRPT net sales will have increased by 30% in 2020.
FRPT certainly deserves credit for growing its customer base from slightly less than two million to more than three million in half a decade. Furthermore, FRPT’s net income is up nearly 80% on a year-over-year basis. The gradual expansion of FRPT’s brand sets the stage for valuable exposure that greatly boosts its chances of hitting household penetration between eight and ten million across the next five years.
A strong case can be made for both of these pet food stocks. When in doubt, consult the POWR Ratings. CHWY has "A" grades in the Peer Grade and Trade Grade components. The stock is ranked 9th out of 37 publicly traded companies in the Consumer Goods space. FRPT has "A" grades in the Peer Grade, Trade Grade, and Buy & Hold Grade POWR Rating components. FRPT is ranked 7th of 58 companies in the Food Makers category.
However, the analysts are not exactly bullish on FRPT, setting an average price target of $133.50, meaning it has a 4% downside. Of the eight analysts who have studied the stock, five recommend buying, two recommend holding and one advises selling. The analysts are more bullish on CHWY, setting an average price target of $92.36, meaning it is likely to increase around 2%. Of the 14 analysts who have performed a deep dive into CHWY, 10 recommend buying, four recommend holding and none advise selling, ultimately making CHWY the better pick.
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CHWY shares were trading at $90.23 per share on Tuesday afternoon, down $2.38 (-2.57%). Year-to-date, CHWY has gained 211.14%, versus a 17.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.Chewy vs. Freshpet: Which Stock is a Better Buy? appeared first on StockNews.com