What happened
Shares of Freshpet (FRPT +0.09%) finished lower today even though there was no news out on the maker of natural pet foods. Instead, the stock seemed to get swept up in the broader sell-off around the coronavirus, and shares finished the day down 10.5% against the 7.6% loss for the S&P 500.
So what
The pet-food industry tends to be resilient to recessions and other economic shocks. Pets need to eat whether the economy is good or bad, after all, and during the last recession, spending on pets continued to grow in spite of the financial crisis. Americans, it seems, don't want to deprive their pets even when times are tough.
Image source: Freshpet.
Like other pet-product stocks including Chewy and PetMed Express, Freshpet had mostly weathered the coronavirus sell-off well as its biggest decline during this period came when it reported earnings on Feb. 26. That changed today, however, though it's not fully clear why.
Unlike some of its peers, Freshpet relies on customers visiting stores to purchase many of its products, as much of its product line is refrigerated. If customers have to stay at home under lockdown conditions or don't want to leave the house, that could threaten Freshpet's sales and lead to customers to switch dry food like kibble. In addition, Freshpet is a growth stock, and during tough times growth stocks are often the first ones to fall. These stocks don't have significant profits to underpin their value, and investors tend to move into safer investments like bonds and dividend-paying, defensive stocks during bear markets.
Now what
Despite today's sell-off, Freshpet still looks like a good bet to outperform the market while the coronavirus dominates the news and investor sentiment. The company manufactures all of its food in the U.S., making it immune to any supply chain disruptions from China, and pet owners are generally reluctant to switch to new food for their pets as doing so can cause upset stomach and similar health issues.
If the economy slows down significantly, Freshpet's growth rate may also slow as selling to new customers and installing new refrigerators may get more difficult, but generally, the headwinds from the coronavirus scare should be relatively mild for Freshpet. This remains an appealing long-term bet.
