Blue Buffalo: In the BUFF

05/26/2016 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

With names like Freedom and Wilderness, our latest featured recommendation is the fastest-growing major pet food company in the US, asserts growth stock expert Mike Cintolo, editor Cabot Top Ten Trader.

Blue Buffalo Pet Products (BUFF) has reached this level of success thanks to shelf space at chain stores PetSmart and Petco (which account for 70% of revenues) and marketing that focuses on the high quality of its products.

The company emphasizes the fact that its dog and cat foods contain only the finest natural ingredients; it has grown both revenues and earnings consistently over the past five years.

As is typical for companies, as Blue Buffalo has grown, its growth has slowed, but it’s still rapid enough for growth investors to get excited.

In the latest quarter, which was reported last week, revenues grew 12% to $280 million, while earnings grew 19% to $0.19 per share, beating analysts’ estimates of $0.18.

Furthermore, after-tax profit margins hit 13.7%, the highest number in years and a sign of increasing efficiency.

Commenting on the results, CEO Kurt Schmidt said, “We’re off to a great start for the year. More importantly, we continue to gain share and invest in our future. As a result of our strong year-to-date performance, we are raising the low end of our revenue and EPS guidance for the full year.”

As a relatively young name with mass-market growth potential, Blue Buffalo could go far. BUFF came public just last July, and pulled back soon after (with the market) to ultimately bottom at $15 in February.

After clawing its way back to $20, the stock rallied sharply right after its fourth- quarter earnings beat, gapping up to $23. We featured it here soon after (giving it a buy range of $21.5 to $22.5), but the stock never fell into our buy range, though it did pull back to support at $23 twice.

In the wake of the recent excellent earnings report, the stock tagged new highs. Buying a small position here or on dips is a low-risk proposition.

Subscribe to Cabot Top Ten Trader here…

By Mike Cintolo, Editor Cabot Top Ten Trader

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