Latest news with #FRPT
Forbes
19 hours ago
- Business
- Forbes
Investors Might Need A Waste Bag For Freshpet's Stock
Pet food is displayed in a refrigerated cases at the Freshpet Inc. production facility in Bethlehem, ... More Pennsylvania, U.S., on Monday, Nov. 9, 2015. Freshpet produces the only industrial refrigerated pet food on the market, which is made with only fresh ingredients and eschews preservatives. Sales of premium dog food have surged 45 percent to $10.5 billion in the U.S. since 2009 and now account for more than half of the market. Photographer: Chris Goodney/Bloomberg I originally put Freshpet Inc. (FRPT) in the Danger Zone on February 2, 2022 and most recently reiterated my bearish opinion on the stock in October 17, 2022. Despite falling 45% YTD, I'm here to remind you: this stock remains dangerous. Figure 1: Freshpet Outperformance as a Short From 2/3/22 Through 5/9/25 FRPT Performance as Danger Zone Pick Freshpet has successfully grown its retail presence and increased its total store count (stores that sell Freshpet products) by 380 from the end of 4Q24 to the end of 1Q25. Similarly, the company's revenue increased 18% YoY in 1Q25, mainly driven by volume gains of 15% and favorable price/mix of 3%. Additionally, Freshpet's adjusted EBITDA increased from $31 million in 1Q24 to $36 million in 1Q25, though I show below why this metric is misleading. Retail improvements and top-line growth aside, Freshpet's fundamentals remain in very poor shape. The company missed earnings estimates in its 1Q25 report and lowered full-year adjusted EBITDA guidance to the range of $190-$210 million, compared to prior guidance of 'at least $210 million'. Freshpet's management provides a misleading view of the company's profitability when it directs investors to its 'Adjusted' EBITDA. From 2019 to the TTM, Freshpet's Adjusted EBITDA improved from $29 million to $167 million, while its GAAP net income rose from -$1 million to $16 million. Over the same time, the company's economic earnings, the true cash flows of the business, fell from -$11 million to -$88 million. It is a big red flag when the company's preferred non-GAAP metric is rising while its economic earnings are declining, or even worse, when its GAAP net income gets outpaced as well. The discrepancy between the metrics comes largely from the company removing $8.8 million in non-cash share-based compensation when calculating 1Q25 adjusted EBITDA. For reference, Freshpet's 1Q25 GAAP net income was -$13 million. The discrepancy should come as no surprise as Freshpet openly admits in earnings releases that 'the non-GAAP measures are not and should not be considered an alternative to the most comparable U.S. GAAP measures'. Figure 2: Freshpet's Adjusted EBITDA vs. Net Income vs. Economic Earnings: 2019 – TTM FRPT Misleading Earnings 2019-TTM Freshpet's total operating expenses, which include cost of goods sold and selling, general, and administrative expenses have remained high for years. For instance, over the last five years, total operating expenses averaged 106% of revenue. More recently, Freshpet's total operating expenses rose from 96% of revenue in 1Q24 to 104% of revenue in 1Q25. The increase was driven by SG&A expenses rising from 36% of revenue to 44% of revenue over the same time. Considering the company's high operating costs, it should come as no surprise that Freshpet has been and continues to burn cash. Freshpet's free cash flow (FCF) has been negative on an annual basis every year in my model (dating back to 2017). On a quarterly basis, Freshpet's FCF has been negative in 34 of the 36 quarters in my model. The only two quarters with positive FCF occurred in 4Q16 and 2Q18. From 2019 through 1Q25, Freshpet has burned through a cumulative $1.2 billion (29% of enterprise value) in FCF excluding acquisitions. See Figure 3. Figure 3: Freshpet's Cumulative Free Cash Flow Since 2019 FRPT FCF Burn 2019-1Q25 Despite its cash burn rate, I did not make Freshpet a Zombie Stock because its cash on hand can support its TTM cash burn rate for 34 months (more than the 24 months cut off) from the end of May 2025. Note that Freshpet was a Zombie Stock before Jana Partners, in 4Q22, took a 10% stake in Freshpet and boosted the company's cash on hand enough to extend its cash burn runway past 24 months. Jana Partners exited its position in Fresphet in 2Q24. Consequently, FRPT is at risk of going back on the Zombie Stock list should its cash burn runway fall below 24 months. Freshpet faces direct competition from both larger companies like Nestle (NSRGY), Mars Inc., General Mills (GIS), Colgate-Palmolive (CL), and Chewy (CHWY), as well as smaller, lesser-known start-ups. Additionally, the company faces heavy competition from private label pet food brands. In the most recently available comparable public data (Mars is privately owned and doesn't disclose pet business sales every year), the pet food market was dominated by Nestle and Mars. In 2023, Nestle (32%) and Mars (29%) combined to make up 61% of the global pet food market. Hill's Pet Nutrition (owned by Colgate-Palmolive) General Mills (GIS), The J.M. Smucker Company (SJM), rounded out the top five. Freshpet held just over 1% market share. See Figure 4. Figure 4: Freshpet's Market Share Compared to Peers FRPT Market Share 2023 Importantly, these companies have significant competitive advantages in the form of larger manufacturing scale, a more extensive distribution network, and other business lines that generate cash to re-invest in the business. If I analyze estimated market share based on Freshpet's 2024 sales and the estimated pet food market size in 2024, I find that the company holds just 1% of the estimated market. Competitors also include general retailers, such as Walmart (WMT), Costco (COST), and Amazon (AMZN), each of which sell their own private label pet brands. Freshpet not only lags the competition in market share, but also in profitability. Even though Freshpet achieved a record net operating profit after-tax (NOPAT) of $50 million in 2024, profits have fallen to -$10 million in 1Q25, down from $9 million in 1Q24. Similarly, the company's return on invested capital (ROIC) hit a peak of 4% in 2024, but has fallen to 2% in the TTM ending 1Q25. Per Figure 5, Freshpet has the lowest ROIC and one of the lowest NOPAT margins in the industry. Figure 5: Freshpet's Profitability Vs. Peers: TTM FRPT Profitability vs. Peers Taking market share in an industry already dominated by larger and more profitable companies will be hard to do, especially considering that Freshpet's revenue is entirely undiversified or 100% dependent on its pet food sales. Below, I use my reverse discounted cash flow (DCF) model to analyze the future cash flow expectations baked into Freshpet's stock price. Freshpet's stock is priced as if it will grow profits at accelerated rates while also taking huge chunks of market share. I also present additional DCF scenarios to highlight the downside risk in the stock if Freshpet fails to achieve these overly optimistic expectations. To justify its current price of ~$80/share, my model shows Freshpet would have to: In this scenario, Freshpet would generate $11.7 billion in sales in 2034, which is 12x its TTM sales, 3x Colgate-Palmolive's TTM pet food sales, and 5x General Mill's pet food sales. This scenario also implies Freshpet's NOPAT would reach $608 million in 2034, compared to the company's all-time high NOPAT of $50 million and TTM NOPAT of $30 million. The implied sales in this scenario equate to 7% of the forecasted global pet food market in 2034, which is far above the company's estimated 1% market share in 2024. Furthermore, companies that grow revenue by 20%+ compounded annually for such a long period are 'unbelievably rare', making the expectations in Freshpet's share price even more unrealistic. If we, instead, assume Freshpet: the stock would be worth $49/share today – a 40% downside to the current price. In this scenario, Freshpet would grow sales to $7.2 billion in 2034, which would be around 8x the company's TTM sales, 2x Colgate-Palmolive's TTM pet food sales, and 3x General Mill's pet food sales. The implied sales in this second scenario would represent 4% of the pet foods market in 2034, which is 4x the company's market share in 2024. If I instead assume Freshpet: the stock would be worth just $26/share today – a 68% downside to the current price. The implied sales in this scenario would still represent 3% of the projected global pet foods market in 2034. Figure 6 compares Freshpet's implied future revenue in these scenarios to its historical revenue. For comparison, I include the TTM pet food sales of peers Colgate-Palmolive (CL) and General Mills (GIS). Figure 6: Freshpet's Historical and Implied Revenue: DCF Valuation Scenarios FRPT DCF Implied NOPAT Scenarios Each of the above scenarios assumes Freshpet grows revenue, NOPAT and FCF without increasing working capital or fixed assets. This assumption is highly unlikely but allows me to create best-case scenarios that highlight the unrealistically high expectations embedded in the current valuation. For reference, Freshpet's invested capital grew 43% compounded annually from 2019 through the TTM. If I assume Freshpet's invested capital increases at a similar rate in the DCF scenarios above, the downside risk is even larger. Given that the performance required to justify its current price is overly optimistic, I dig deeper to see if Freshpet is worth buying at any price. The answer is likely no. The company has $477 million in total debt, $42 million in outstanding employee stock options, and just $226 million excess cash. Freshpet has an economic book value, or no-growth value, of <$1/share. In other words, I do not think equity investors will ever see anywhere close to the level of economic earnings required to justify anything more than $1/share under normal operations.
Yahoo
13-05-2025
- Business
- Yahoo
Freshpet, Inc. (FRPT): A Bull Case Theory
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. guidocava/ 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. READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock. Disclosure: None. This article was originally published at Insider Monkey.
Yahoo
06-05-2025
- Business
- Yahoo
Freshpet First Quarter 2025 Earnings: Revenues Beat Expectations, EPS Lags
Freshpet (NASDAQ:FRPT) First Quarter 2025 Results Key Financial Results Revenue: US$263.2m (up 18% from 1Q 2024). Net loss: US$12.7m (down by 168% from US$18.6m profit in 1Q 2024). US$0.26 loss per share (down from US$0.39 profit in 1Q 2024). AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. NasdaqGM:FRPT Earnings and Revenue Growth May 6th 2025 All figures shown in the chart above are for the trailing 12 month (TTM) period Freshpet Revenues Beat Expectations, EPS Falls Short Revenue exceeded analyst estimates by 1.9%. Earnings per share (EPS) missed analyst estimates. Looking ahead, revenue is forecast to grow 17% p.a. on average during the next 3 years, compared to a 2.3% growth forecast for the Food industry in the US. Performance of the American Food industry. The company's shares are up 7.8% from a week ago. Risk Analysis Be aware that Freshpet is showing 1 warning sign in our investment analysis that you should know about... Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
24-04-2025
- Business
- Yahoo
3 of Wall Street's Favorite Stocks with Questionable Fundamentals
Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it's important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts. At StockStory, we look beyond the headlines with our independent analysis to determine whether these bullish calls are justified. Keeping that in mind, here are three stocks where Wall Street's enthusiasm may be misplaced and some other investments worth exploring instead. Consensus Price Target: $165.17 (65% implied return) Standing out from typical processed pet foods, Freshpet (NASDAQ:FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats. Why Does FRPT Worry Us? Modest revenue base of $975.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies Negative free cash flow raises questions about the return timeline for its investments Negative returns on capital show that some of its growth strategies have backfired At $74.60 per share, Freshpet trades at 26.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why FRPT doesn't pass our bar. Consensus Price Target: $296.85 (66.5% implied return) The developer of the first blade-type automotive fuse, Littelfuse (NASDAQ:LFUS) provides electrical protection and control components for the automotive, industrial, electronics, and telecommunications industries. Why Is LFUS Risky? Customers postponed purchases of its products and services this cycle as its revenue declined by 6.6% annually over the last two years Sales were less profitable over the last two years as its earnings per share fell by 29% annually, worse than its revenue declines Diminishing returns on capital suggest its earlier profit pools are drying up Littelfuse is trading at $163.45 per share, or 16.1x forward price-to-earnings. Read our free research report to see why you should think twice about including LFUS in your portfolio, it's free. Consensus Price Target: $64.75 (36.2% implied return) With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases. Why Do We Think KFRC Will Underperform? Annual sales declines of 9.4% for the past two years show its products and services struggled to connect with the market during this cycle Earnings per share fell by 13.1% annually over the last five years while its revenue was flat, showing each sale was less profitable Waning returns on capital imply its previous profit engines are losing steam Kforce's stock price of $44.61 implies a valuation ratio of 15.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why KFRC doesn't pass our bar. The market surged in 2024 and reached record highs after Donald Trump's presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025. While the crowd speculates what might happen next, we're homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver's seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years. Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free. Sign in to access your portfolio
Yahoo
24-04-2025
- Business
- Yahoo
Freshpet (FRPT): Buy, Sell, or Hold Post Q4 Earnings?
Freshpet has gotten torched over the last six months - since October 2024, its stock price has dropped 44.5% to $73.78 per share. This might have investors contemplating their next move. Is there a buying opportunity in Freshpet, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team's opinion, it's free. Even though the stock has become cheaper, we don't have much confidence in Freshpet. Here are three reasons why there are better opportunities than FRPT and a stock we'd rather own. Standing out from typical processed pet foods, Freshpet (NASDAQ:FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats. With $975.2 million in revenue over the past 12 months, Freshpet is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into. If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Freshpet's demanding reinvestments have drained its resources over the last two years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 11.2%, meaning it lit $11.25 of cash on fire for every $100 in revenue. Growth gives us insight into a company's long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity). Freshpet's five-year average ROIC was negative 2.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer staples sector. Freshpet's business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 26.7× forward price-to-earnings (or $73.78 per share). This valuation tells us it's a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. Let us point you toward one of our top software and edge computing picks. The market surged in 2024 and reached record highs after Donald Trump's presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025. While the crowd speculates what might happen next, we're homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver's seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years. Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
