Freshpet (FRPT) has one of those long-term, “secular” growth stories that keeps attracting more and more big investors and driving the stock higher over time, suggests Mike Cintolo, growth stocks expert and editor of Cabot Top Ten Trader.
As pets have become an integral part of the family, people are willing to spend more on them, and Freshpet is the leader in selling higher-quality (and higher cost) food for Fido and Whiskers.
The firm offers natural, vitamin-packed foods that are prepared at lower temperatures to preserve key nutrients; its offerings contain much more protein that competing brands and most users say they see a visible improvement in their pets’ health.
Longer-term, this is a goldmine of an industry, as the entire pet food sector is recession resistant, and the high-end pet food area is likely to more than double by 2025 (3.5 million household customers now, 8 million goal).
That’s all to the good, and even better than that is the fact that the pandemic, while causing some initial disruptions, has actually proven to be a boon — in Q2, Freshpet’s sales growth (up 33%) was the fastest its seen in years, and while e-commerce was just 5% of total sales, they more than tripled from a year ago.
Earnings and EBITDA easily topped estimates as well, causing management to boost its sales and EBITDA outlook for the year.
Of course, it’s not as sexy as some names, but big investors like firms with rapid and reliable growth, and Freshpet is a poster child for that.
Technically, FRPT has been in a longer-term uptrend for years as the story has played out, but that doesn’t mean it can’t correct sharply at times, as we saw in February/March.
The uptrend quickly resumed after that and, over the last two weeks, popped a bit out of trend on the upside before and after earnings. That usually leads to a pullback, but odds favor weakness offering a good chance to get in.
