Freshpet (FRPT 0.06%) stock is down nearly 20% from its peak this spring. Is it still worth a look?

In this episode of "Upgrade or Topgrade" recorded on Oct. 15, Fool contributor Jeremy Bowman and Millionacres Editor Deidre Woollard discuss Freshpet's valuation and what to expect from the company in the next few years.

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Jeremy Bowman: I think there has been some noise in the numbers lately. You mentioned they've had supply chain issues like a lot of companies. I think last December, particularly, they got really slammed by a combination of weather and supply shortages. In one sense, their demand has been outstripping supply, which is a good thing, and that's why they are investing so much in these new manufacturing facilities. Talking about how they plan to scale up, they have some big goals for 2025, increasing their customer base from four million in North America to 11 million households, so almost tripling it. I'm going to show there. This is where they're at, or they finished last year with $319 million in sales, 14.7% in adjusted EBITDA. Right now, they are at $445 million. They see by 2025 and beyond getting to $1.25 billion to $2 billion (in sales). What happens with that is your margins really expand pretty aggressively. You're at 25 percent at 1.25 billion, or greater than 25 percent at two billion in revenue. You can see how their business model is going to ramp up as they scale. I think this is just your classic consumer brand, consumer products play. I think of something like Coca-Cola or one of those classic brands. Freshpet has a leadership in this space. It's not a product like coke that we can just try. But if you believe that they are the leader, and they have the best product, and they have the distribution as I was talking about, I think they have a pretty bright future as far as margins and profitability.

Deidre Woollard: I would agree with that. I think that the consumer knows the brand, I think the consumer trusts the brand, which is also very important. It's not like kibble where you can switch around because once you're with Freshpet, I think you're more like you continue with that. As much as I like the one point of focus, I also do think like, they're not really talking about doing much [inaudible 02:21:44] . They're talking about just making more fresh food. I'm a little curious about how they plan to grow beyond that. I think it's just, they just want to get to scale. They've talked about dogs, the level of ownership rising, spend by millennial dog owners, that thing. They're keyed into that trend, but it doesn't sound like they're really getting into any of the other markets the way some of the other pet brands are.

Bowman: Sure. You make a good point there. They're a bit of a one-trick pony as far as focusing on fresh dog food and cat food as well. I think that could make them vulnerable to competition as well. I know one brand, just a start-up-Farmers Dog-is doing something similar with an e-commerce model. They're blanketing Google with ads and I've seen ads for them on the subway in New York. I think they're going to get more competition given the growth that they've seen. They argue that there are a lot of industry tailwinds in their favor, millennials getting more dogs and interested in health and wellness for your dog and feeding them also your food. Those are going to favor the new competitors as well. You're right, they aren't as diversified as some of the other pet product companies out there.

Woollard: I think that there's potential for them to be, but it doesn't seem like where they're going. But I could see them doing other things with those factories once they get them up and running. I think that they, like Chewy are focusing a little bit too also on the fulfillment aspect of things. I would expect them to go deeper into the e-commerce world. They've got a lot of room for growth there. Its not even six percent of their business, I think that they could do a lot with that, it's just not happening yet. It'll be an interesting one to watch. Looking at all of these, I start thinking about like, just from the business perspective, Freshpet is doing well from the future perspective. I'm not sure how is it really that much growth left in it, and how much growth could there possibly be if I'm holding this one long term.

Bowman: Yeah, I definitely think it's a pretty bullish projection from them to, I guess they're basically saying they're going to triple their customer base within four years. If they can do that's great. But it's not an easy goal. Let's put it that way. I think we're seeing some of that fixed into the stock price. They've had a similar trajectory to Chewy and they pulled back a little bit recently. But it's a high growth estimate there.