soft (NYSE: CHWY), Petco (NASDAQ: OUF), Freshpet (NASDAQ: FRPT), and Tractor supply (NASDAQ: TSCO) – how these pet stocks all compare to each other?
In this segment of “Upgrade or Topgrade” registered on October 15, Fool contributors Jeremy Bowman and Parkev Tatevosian and Millionacres editor Deidre Woollard discuss these top four pet actions and pick their favorites.
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Deidre Woollard: I’m looking at the poll, Freshpet is at the bottom of our rankings here. I’m wondering for folks, feel free to tell us in Q and A, if part of it is that one trick pony thing, and think about how Freshpet uses their data. I don’t think because they’re in grocery stores, I mean they have e-commerce but, like we talked about, not that much. I’m wondering if this is something that is going to be a problem is that they will know the information stored, but they might not know as much about their customers as they potentially could, and that they may need to find better ways to get closer to the customer. I think that’s always the risk if you are relying on other retailers is that you are relying on the retailer to tell you more about your customer than you can directly find out. It can also be a concern.
Jérémy Bowman: Yes, that’s a good point. This might be another small complaint about Freshpet, but they come in logs, one pound, two pounds, maybe up to five pounds. I think they are getting pretty big. But my experience with them too is that I cut them and then wanted to use some of them. In some ways, it was a lot of work on my part to make sure everything didn’t go wrong sitting in the fridge. I think even something like portion sizes I guess you could call it, for me as having a small dog it would work best if it was already pre-portioned into small meals.
Oldest boy : When I think of Freshpet too, I always play Shark aquarium in my head. [laughs] If I were someone talking about Freshpet, Mark Cuban would say to me, “But can’t someone else come and do this and take your business?” I think that’s one of the things that concerns me with them. I mean, although the way they talk about their factories and the fact that they can hopefully be able to scale much faster is a vote in their favor. I can see why the market is rewarding them lately, because I think there are growth trends, there is potential. But if I had to rank them myself, I think I would be okay with everyone filling out the poll here and putting Freshpet down at # 4. Do you agree?
Archer: Yes. I will defend Freshpet. [laughs]
Oldest boy : Yes.
Archer: I think the stock is expensive right now. I think if you look at the track record, it’s something almost five years old, looking back each quarter with growth of 20% or more. What this tells me is that there is an opportunity for growth with consumers converting to fresher, chilled fresh foods that they are offering. They capture this market. I think this is the best selling brand. I think they’re neck and neck with Blue Buffalo right now in all dog food. They’re doing pretty well there. There really is no close competitor in fresh food at this time. I think, as we’ve said before, this target of capturing 11 million homes is pretty optimistic. They’ve done a lot of things so far, so I don’t see any reason not to believe in their management at this time.
Oldest boy : Well, our poll puts Petco in third place, which surprises me. I think Petco is really interesting. I think you could tell I’m really excited about what they’re doing. I feel like there is so much potential. I feel like sometimes we and the market actually penalize retailers for having stores. I can understand that certainly in the pandemic, I can understand that this has resulted in all the retailers. It makes sense. But I still feel like there’s so much value in having a retail footprint, so I’m surprised by the poll that Petco is below Tractor Supply Company.
Archer: I agree with you. I think you are correct that the market is punishing retailers [laughs] to have a physical footprint. I think Target reminds me of that too, but you see some of them using it to their advantage and I think Petco is really starting to do it.
Oldest boy : As we wrap up we have Chewy and Tractor Supply, both ranked roughly tied here. The final words on this, if you’re going to rank them, do you rank them the same as this poll or something different? We have Chewy, Tractor Supply, Petco, and then Freshpet.
Parkev Tatevosian: I would rate it up there. Maybe Tractor Supply and Petco get closer, then Freshpet fourth.
Archer: I think I would rank Petco # 1. I think we haven’t talked about the valuation either, but it’s definitely a lot more affordable than well, at least, Chewy and Freshpet. They’re profitable, pretty solidly profitable too, so I don’t know. As we’ve talked about, I’m really looking forward to seeing where they go over the next couple of years. I think this could be a startling story in the pet industry.
Oldest boy : Yes.
Deidre Woollard has no position in any of the stocks mentioned. Jeremy bowman owns shares of Target. Parkev Tatevosian owns shares of Chewy, Inc. The Motley Fool owns shares and recommends Chewy, Inc. and Freshpet. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.