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Best Pet Food Stocks for Animal Lovers

Here's a primer on how to play the pet products industry.

By Jeremy Bowman – Updated Jul 11, 2022 at 1:05PM

Interest in the pet industry has surged during the COVID-19 pandemic, but there are a lot of reasons to invest in pet stocks. In fact, if you were to make a list of the top qualities in consumer-facing stocks, the pet food industry would check virtually every box.

An English Beagle looking up
Image source: Getty Images

Pet products are repeat purchases, and pet owners tend to buy products such as dog food at regular intervals. This gives pet food companies both a reliable revenue stream and loyal customers who are reluctant to switch their animal's diet. Additionally, pet food is a recession-proof sector; sales of pet products actually rose during the 2008 financial crisis and the early stages of the pandemic. Pet owners are willing to spend on their furry friends in good times and bad, placing pet products in the broader category of consumer staples, although they aren't usually thought of that way.

Other trends favor growth in the pet food segment. One is the humanization of pets. Spending on pets is increasing as millennials and young adults view them more like members of the family. Ancillary pet products such as pet insurance and animal health products are becoming mainstream and expanding the broader industry. And pet adoption soared during the pandemic, which should elevate sales of consumables such as pet food for years to come (although the pandemic bump is likely to fade).

For all those reasons -- as well as the simple fact that there's no real substitute for pets -- it's easy to see why you would want some exposure to the industry. Keep reading to see five of the top pet food stocks you can buy today.

Top pet food stocks

Source: Yahoo! Finance. Market cap data as of Sept. 9, 2021.
Company Market Cap Description
Chewy (NYSE:CHWY) $31.9 billion Online retailer of pet food and other pet products.
Freshpet (NASDAQ:FRPT) $5.7 billion Maker of fresh and natural pet foods.
Petco Health and Wellness (NASDAQ:WOOF) $6.8 billion Brick-and-mortar retailer of pet products.
The Original BARK Company (NYSE:BARK) $1.4 billion Online subscription seller of dog-themed products like treats and toys.
Central Garden & Pet Company (NASDAQ:CENT) $2.3 billion Distributor and wholesaler of a wide range of garden and pet products.

Chewy

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's a top pet food stock and why the industry is so appealing.

Most Chewy customers purchase products on a subscription basis, or what it calls autoship, by signing up to get items at recurring intervals. In 2020, autoship customers represented 68.4% of its sales, or almost $4.9 billion of $7.1 billion in total revenue.

The autoship program is a both a revenue driver and a customer retention tool for Chewy. Autoship sales generate higher operating margins since they require little incremental marketing spend from Chewy.

Chewy is also benefiting from a number of trends in pet foods, including the transition to e-commerce, which is well-suited to pet products, and the surge in pet adoptions during the pandemic. Those trends helped drive Chewy's revenue up 47% in 2020.

The company is not yet profitable, but its margins are improving as it gains scale, and it should eventually reach profitability, thanks in part to its autoship business.

Freshpet

Freshpet has been a top performer on the stock market since its 2014 IPO, riding trends that include an increasing interest in natural and organic foods for humans and pets.

That trend has helped to drive the company's growth as Freshpet has distinguished itself from most pet food companies by selling fresh, refrigerated pet food rather than dry kibble. Freshpet fridges have become common in both pet stores and supermarkets, and the company finished 2020 with fridges in 22,700 stores across North America. The company sees room in the market for more than 30,000 store locations.

It's also begun expanding internationally, starting with the U.K., and is increasing manufacturing capacity to meet an expected rise in demand. The company has room for growth; only 4 million of more than 85 million pet-owning households in North America are Freshpet customers. The company is planning 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 accomplish its goal.

Petco

Petco is not a new company, but it is a new stock. The big-box pet products retailer was founded in 1965 but went public at the beginning of 2021, taking advantage of increased interest in pets and pet stocks during the pandemic. Today, it has about 1,500 locations around the country and seeks 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, and training and grooming. The ability to house clinics inside its stores for vet care and grooming gives Petco an advantage over e-commerce companies that can't provide such services. According to a Lippincott survey the company cites, half of pet owners prefer a one-stop experience for their pet needs.

Petco's growth was almost flat in 2019 but accelerated in 2020, thanks to pandemic-related tailwinds. The company posted 11.4% year-over-year comparable sales growth, and revenue increased 11% to $4.92 billion.

The company's strategy of adding veterinary clinics to stores should help improve profitability as stores with vet clinics increased from 39 at the end of 2018 to 125 at the end of 2020. Additionally, profitability has gotten a boost after it paid off $1.5 billion in debt with funds raised from the IPO.

The Original BARK Company

The Original BARK Company may be better known by the name of its best-known product, Barkbox, a monthly subscription service that provides premium toys and treats for dogs. The company went public through a SPAC in a merger completed in June 2021.

Following the growth in e-commerce and a 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 were up 53% to 11.6 million, and it narrowed its adjusted EBITDA loss from $17.8 million to $7.9 million, showing steps toward profitability.

Bark offers a number of subscription products, including Bark Eats, a monthly meal plan; Bark Bright, a health subscription that starts with a dental kit; and Super Chewer, durable dog toys for larger dogs.

Bark aims to continue growing by expanding to new categories, increasing brand awareness, and broadening its subscriber base. With its strong growth and a unique subscription model that selects products for customers, Bark could have a promising future ahead.

Central Garden & Pet Company

Most pet food companies focus on dogs and cats, but Central Garden & Pet has a broader reach by also selling food for birds and small animals such as rodents, fish, reptiles, and others.

Founded as a distribution company, Central Garden & Pet has made more than 50 acquisitions over its history, giving it an impressive portfolio of proprietary products, as well as a widespread distribution network that serves more than 9,800 retailers and more than 6,400 veterinary offices.

That strategy has helped Central Garden & Pet deliver steady top-line growth and also margin improvement. Like other pet product companies, the company got a boost from the pandemic, with sales increasing 13% to $2.7 billion and a 37% earnings-per-share improvement to $2.20, or $120.7 million in net income. It's on track to continue growing, and Central's exposure to both garden and pet products gives it several pandemic-related tailwinds.

While the company may not offer the disruptive potential of other pet stocks, its history of acquisitions and entrenched relationships with major retailers makes it a good bet for steady growth in the pet industry.

Related investing topics

Trends in the pet industry

Investors interested in pet food stocks should also consider looking to the broader pet industry, including pet medications and veterinary products. Stocks worth considering include IDEXX Laboratories (NASDAQ:IDXX), which makes veterinary diagnostic tools and lab tests, and Zoetis (NYSE:ZTS), which makes animal health medicines and vaccines. Pet insurance is also a fast-growing sector of the pet industry, and Trupanion (NASDAQ:TRUP) offers one way to get pure-play exposure to the sector. Investors might also consider Rover (NASDAQ:ROVR), a newly listed stock that addresses the market for dog-walking and pet-sitting services.

One thing is clear in the pet industry: The growth trends supporting the industry and the demand for pets among millennials are not going away. Although they may have been temporarily boosted by the pandemic, the humanization of pets and the willingness to spend on them -- including on organic food, insurance, grooming, and wellness products -- should ensure the industry continues to experience solid growth beyond the crisis and presenting a number of appealing opportunities for investors.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy, Inc., Freshpet, Rover Group, Inc., Trupanion, and Zoetis. The Motley Fool recommends Idexx Laboratories. The Motley Fool has a disclosure policy.

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