Freshpet, Inc. (FRPT): A Bull Case Theory

Yahoo

13-05-2025

We came across a bullish thesis on Freshpet, Inc. (FRPT) on Substack by Greg ┃The Elevator Pitch. In this article, we will summarize the bulls' thesis on FRPT. Freshpet, Inc. (FRPT)'s share was trading at $81.11 as of May 7th. FRPT's trailing and forward P/E were 270.37 and 78.12 respectively according to Yahoo Finance.
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Freshpet is reshaping the $54 billion U.S. pet food market by dominating the rapidly expanding fresh pet food segment with its premium, human-grade offerings and distinctive vertically integrated distribution strategy. Since pioneering the category in 2014, Freshpet has grown its market share in fresh pet food to a commanding 96%, while the segment itself has expanded from just 2% of the total pet food market to 4–6% today. The company's moat is built on its unique network of over 36,000 branded refrigerators placed in grocery and pet stores across the country—refrigerated infrastructure that not only reduces reliance on slotting fees but also ensures visibility and accessibility in high-traffic retail locations. This physical footprint gives Freshpet a durable advantage over competitors and enables a more profitable, high-margin product line for retailers. The brand has built strong customer loyalty by delivering visible health benefits for pets, such as improved energy, digestion, and breath. Given the challenges involved in switching a pet's diet, this leads to unusually high customer retention rates once conversion to fresh food occurs.
Despite this enviable position, Freshpet's share price has significantly lagged, mostly due to past concerns over capacity bottlenecks and a softening end-market environment. However, these issues are now subsiding, and the company appears poised for a major operational and financial turning point. With enhanced manufacturing capabilities coming online, operating leverage is accelerating, and EBITDA is projected to compound at a 36% CAGR through 2027. Crucially, Freshpet is on the verge of producing sustainable free cash flow for the first time, yet its stock continues to trade approximately 45% below its recent highs. This disconnect between fundamentals and market sentiment offers an attractive entry point. While frozen, direct-to-consumer rivals like Farmer's Dog have gained some traction, their unit economics are weighed down by costly cold-chain logistics and a lack of scale profitability, reinforcing Freshpet's superior retail-based model.
The broader landscape further supports Freshpet's dominance. The pet food market is largely controlled by incumbents like Mars and Nestlé, which have been reluctant to venture into the operational complexity of fresh offerings. Although Colgate-Palmolive's acquisition of Australia's Primo100 hints at renewed interest from major CPG players, replicating Freshpet's scale and infrastructure would require enormous investment. With nearly $1 billion in expected 2024 revenue and a sticky customer base, the company enjoys a rare mix of structural growth, staple-like defensiveness, and a defensible moat. Its valuation, currently at 22.1x EV/EBITDA on 2025 estimates, compares favorably to slower-growth peers like Colgate (22.9x) and Nestlé (20x). When viewed alongside high-growth, asset-intensive companies like Chipotle or CAVA, which trade at premium multiples, Freshpet appears undervalued given its trajectory.
Supporting this thesis, a DCF model suggests substantial upside potential. Assuming management executes on its 2027 targets—including ramped capacity utilization and margin expansion to 24% EBIT—Freshpet could deliver roughly 35% upside from current levels, or 26% adjusting for dilution from convertible debt. This outlook positions Freshpet as a meaningful free cash flow generator with long-term re-rating potential as operational maturity is achieved.
However, risks remain. The stock has been volatile, and its decline following a modest Q4 earnings miss—down nearly 20% in a single day—highlights investor sensitivity. The broader macro backdrop, including a weakening consumer environment, could also weigh on discretionary pet food spending. Competition is heating up, with Colgate's acquisition signaling that legacy players may eventually target the segment more aggressively. Additionally, the company's fortunes are closely tied to the leadership of Billy Cyr and Todd Thompson; any disruption in execution poses key man risk. Quality control is another critical area—any breach, even with a vertically integrated model, could damage brand equity and slow momentum. Activist activity has previously introduced uncertainty, with Jana Partners in 2022 pushing for a sale and triggering market instability. Still, the company successfully defended its independence and refinanced via convertible debt, preserving strategic flexibility.
Overall, Freshpet represents a compelling investment opportunity within a niche that combines consumer brand loyalty, structural industry tailwinds, and meaningful operating leverage. With improving fundamentals, a loyal and growing customer base, and undervalued cash flow potential, the current stock price offers an asymmetric risk/reward setup for long-term investors.
Freshpet, Inc. (FRPT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held FRPT at the end of the fourth quarter which was 38 in the previous quarter. While we acknowledge the risk and potential of FRPT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FRPT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.