Interest in the pet industry has increased during the COVID-19 pandemic, but there are plenty of reasons to invest in pet stock. In fact, if you were to list the top traits in consumer-facing stocks, the pet food industry would check nearly every box.
Pet products are frequent purchases, and pet owners tend to purchase products such as dog food at regular intervals. This gives pet food companies a reliable stream of revenue and loyal customers who are reluctant to change the diet of their animals. In addition, pet food is a recession-proof segment. Sales of pet products actually skyrocketed during the 2008 financial crisis and the early stages of the pandemic. Pet owners want to spend on their furry friends through good times and bad, and they put pet products into a broader category of consumer staples, even though they don’t usually think that way.
Other trends favor growth in the pet food sector. The first is the humanization of pets. Spending on pets is increasing as millennials and young adults view them as members of the family. Additional pet products such as pet insurance and animal health products are becoming prevalent and the broader industry is expanding. Pet adoption has skyrocketed during the pandemic, which will drive sales of consumables like pet food for years to come (although the pandemic bump is likely to fade).
For all of these reasons—plus the fact that there’s no real alternative to pets—it’s easy to see why you’d want to be exposed to some industry. Keep reading to see five of the best pet food stocks you can buy today.
Highest stock of pet food
Chewy has probably gotten more attention than any other pet food stock during the pandemic, and for good reason. The company has become synonymous with e-commerce in the pet products sector for customers and investors alike, and Chewy’s success shows why it is the largest stock of pet food and why the industry is so attractive.
Most Chewy customers buy products on a subscription basis, or what they call autoship, by signing up for items at frequent intervals. In 2020, auto customers represented 68.4% of its sales, or approximately $4.9 billion of its total $7.1 billion in total revenue.
The autoship program is a revenue engine and customer retention tool for Chewy. Auto sales generate higher operating margins because they require little additional marketing spending from Chewy.
Chewy is also benefiting from a number of trends in pet food, including a move to e-commerce, which fits pet products, and an increase in pet adoptions during the pandemic. These trends helped boost Chewy’s revenue by 47% in 2020.
The company has yet to turn a profit, but its margins are improving as it gets bigger, and it should eventually reach profitability, thanks in part to its auto business.
Freshpet has been the best stock market performer since its 2014 IPO, riding trends that include a growing interest in natural and organic foods for humans and pets.
This trend helped drive the company’s growth as Freshpet distinguished itself from most pet food companies by selling fresh, refrigerated pet food instead of dry kibble. Freshpet refrigerators have become popular in both pet stores and supermarkets, and the company finished 2020 with refrigerators in 22,700 stores across North America. The company sees market space for more than 30,000 stores.
It has also started expanding internationally, starting with the UK, and is working to increase manufacturing capacity to meet the expected increase in demand. The company has room to grow. Only 4 million of the over 85 million pet families in North America are Freshpet customers. The company plans to expand its North American customer base to 11 million households by 2025, which has the potential to triple its revenue. Revenue growth has been 20% or better every quarter since 2018, so there’s good reason to believe the company can hit its target.
Petco is not a new company, but it is new stock. The large pet products retailer was founded in 1965 but went public at the beginning of 2021, capitalizing on increased interest in pets and pet stock during the pandemic. Today, it has about 1,500 locations across the country and strives to be a one-stop shop for pet owners by providing a wide range of products such as food, treats, and toys, as well as services such as insurance, veterinary care, training and grooming. The ability to provide in-store clinics for veterinary and personal care gives Petco an advantage over e-commerce companies that cannot provide such services. According to a Lippincott survey cited by the company, half of pet owners prefer a one-stop experience for their pet’s needs.
Petco’s growth was roughly flat in 2019 but accelerated in 2020, thanks to tailwinds linked to the pandemic. The company recorded a sales growth of 11.4% compared to the previous year, and revenue increased by 11% to reach $4.92 billion.
The company’s strategy of adding veterinary clinics to stores should help improve profitability as it increased stores with veterinary clinics from 39 at the end of 2018 to 125 at the end of 2020. Additionally, profitability increased after it repaid $1.5 billion in debt with Funds raised from the IPO.
ORIGINAL BARK COMPANY
The Original BARK Company may be better known by the name of its most popular product, Barkbox, a monthly subscription service that provides premium games and treats for dogs. The company went public through SPAC in a merger that was completed in June 2021.
After growth in e-commerce and the wave of interest from the pandemic, Bark saw revenue jump 69% to $378.6 million for the fiscal year ending March 31, 2021. Subscription shipments rose 53% to 11.6 million, and its rate trimmed. EBITDA loss from $17.8 million to $7.9 million, indicating steps towards profitability.
Bark offers a number of subscription products, including Bark Eats, a monthly meal plan; Bark Bright, a healthy subscription that starts with a dental kit; and Super Chewer, durable dog toys for larger dogs.
Bark aims to continue growth by expanding into new categories, increasing brand awareness, and expanding its subscriber base. With its strong growth and unique subscription model that selects products for customers, Bark can have a promising future.
Central Park & Pets Company
Most pet food companies focus on dogs and cats, but Central Garden & Pet has a much broader reach by selling food to birds and small animals such as rodents, fish, reptiles, and more.
Established as a distribution company, Central Garden & Pet has made more than 50 acquisitions throughout its history, giving it an impressive range of proprietary products, as well as an extensive distribution network serving over 9,800 retailers and over 6,400 veterinary offices.
This strategy helped Central Garden & Pet achieve consistent top line growth as well as margin improvement. Like other pet product companies, the company got a boost from the pandemic, with sales increasing 13% to $2.7 billion and earnings per share improving 37% to $2.20, or $120.7 million in net income. It is well on its way to continuing to grow, and Central’s exposure to both garden and pet products is giving it many of the tailwinds associated with the pandemic.
While the company may not offer the disruptive potential of other pet stocks, its history of acquisitions and solid relationships with major retailers makes it a good bet for the steady growth in the pet industry.
Trends in the pet industry
Investors interested in pet food stocks should also consider looking into the broader pet industry, including pet pharmaceuticals and veterinary products. Stocks worth considering include IDEXX Laboratories ((NASDAQ: IDXX)Manufacturer of veterinary diagnostic tools and lab tests Zoetis (NYSE: ZTS), which manufactures medicines and vaccines for animal health. Pet insurance is also a rapidly growing segment of the pet industry, and Tropanion ((NASDAQ: TRUP) It offers one way to get a pure view of the sector. Investors may also consider rover ((NASDAQ: ROVR), a newly listed stock that deals with the dog walking and pet care services market.
One thing is clear in the pet industry: the growth trends that underpin the industry and the demand for pets among millennials won’t go away. Although it may have been temporarily boosted by the pandemic, humanizing and spending on pets — including on organic food, insurance, personal care products and wellness — should ensure that the industry continues to post solid growth after the crisis and delivers a number It is an attractive opportunity for investors.