Chewy (CHWY 3.75%), Petco (WOOF 6.25%), Freshpet (FRPT +2.15%), and Tractor Supply (TSCO 0.89%) -- how do these pet stocks all compare with one another?
In this segment of "Upgrade or Topgrade" recorded on Oct. 15, Fool contributors Jeremy Bowman and Parkev Tatevosian and Millionacres editor Deidre Woollard debat these four top pet stocks and pick their favorites.
Deidre Woollard: I'm looking at the poll, Freshpet is at the bottom in our rankings here. I'm wondering for people, feel free to tell us in Q and A, if that's partly because of that one-trick pony thing, and thinking about how Freshpet uses their data. I don't think that because they're in grocery stores, I mean, they've got e-commerce but, like we talked about, not that much. I'm wondering if that is something that is going to be a concern is that they'll know stored information but they may not know as much about their customers as they potentially could, and that they may need to figure out better ways to get closer to the customer. I think that's always the risk if you're relying on other retailers is that you're relying on the retailer to tell you more about your customer than you may be able to know directly. That can be a concern as well.
Jeremy Bowman: Yeah, that's a good point. That this is another maybe a small complaint about Freshpet, but they come in logs, one pound, two pound, maybe up to five pound. I think they get pretty big. But my experience with them too is that, I would cut them up and then I wanted to use some of them. In some ways, it was a lot of work on my end to make sure it didn't all go bad sitting in the fridge. I think even something like portion sizes, I guess you might call that, for me as having a small dog, it would work better if it was already pre-portioned into little meals.
Woollard: When I'm thinking about Freshpet, too, I always play Shark Tank in my head. [laughs] If I were someone talking about Freshpet, Mark Cuban would be like, "But can't anybody else just come in and do this and take your business?" I think that's one of the things that I worry about with them. I mean, although the way that they talk about their factories and the fact that they can, hopefully, will be able to scale so much faster, is a vote in their favor. I can see why the market has been rewarding them lately, because I do think that there are growth trends, there is potential. But if I were going to rank these myself, I think I might agree with everyone filling out the poll here and putting Freshpet on the bottom at No. 4. You guys agree?
Bowman: Yeah. I'll defend Freshpet. [laughs]
Woollard: Yes.
Bowman: I think the stock is expensive right now. I think if you look at the track record, it's something close to five years, looking back of every quarter with 20% or more growth. What that tells me is that there is a growth opportunity out there with consumers converting to fresher food, the fresh refrigerated food that they offer. They're capturing that market. I think they're about the top-selling brand. I think they're neck and neck with Blue Buffalo right now in all of dog food. They're doing pretty well there. There's really no close competitor in fresh food right now. I think like we said before, that goal of capturing 11 million households is pretty bullish. They've done a lot right so far, so I don't see a reason to not believe in their management right now.
Woollard: Well, our poll has Petco in the No. 3 position, which I'm surprised by. I think Petco is really interesting. I think you guys could tell that I'm really excited about what they're doing. I feel like there's just so much potential. I feel like sometimes we actually and the market actually penalizes retailers for having stores. I can understand that certainly in the pandemic, I can understand that it dragged down every single retailer. That makes sense. But I still feel like there's so much value in having a retail footprint, and so I'm surprised by the poll that Petco's down below Tractor Supply Company.
Bowman: I agree with you. I think you make a good point there about the market punishing retailers [laughs] for having a physical footprint. I think Target reminds me of this, too, but you see some of them using it to their advantage and I think Petco's really starting to do that.
Woollard: As we wrap up, we've got Chewy and Tractor Supply, both ranked just about tied here. Final words on this, if you're going to rank these, are you ranking them the way this poll is or something different? We've got Chewy, Tractor Supply, Petco, and then Freshpet.
Parkev Tatevosian: I would rank it right up there. Maybe Tractor Supply and Petco closer together, and then fourth place Freshpet.
Bowman: I think I would rank Petco No. 1. I think we didn't talk about the valuation either, but it's definitely valued much more affordably than well, at least, Chewy and Freshpet. They are profitable, pretty solidly profitable as well, so I don't know. As we've been talking, I'm definitely excited to see where they go over the next couple of years. I think it could be a surprising story in the pet industry.
Woollard: Yeah.
