As the U.S. pet industry lives up to its recession-resistant reputation, the valuations of industry stocks have seen a huge uptick.
Even as the novel coronavirus ravaged global economies, some business segments have witnessed stellar growth during the ongoing healthcare crisis and resulted in healthy returns for investors of these stocks in 2020.
One such example is the pet-care industry in the United States. More Americans bought or adopted pets during the coronavirus-induced restrictions and stay-at-home orders, a trend reportedly last seen during the last financial crisis when robust pet ownerships and spending data had emerged.
The Pet Project
A pet-market outlook by PetFoodIndustry.com earlier this year showed that about 8% of adults reported that they had adopted a pet specifically because of the pandemic. Another survey reported by CNBC showed that 33% of Americans had considered fostering or adopting a pet. Within the sample size, that rate was highest for millennials, at 50%, against Gen X, at 33%.
Naturally, allied industries serving pets have witnessed a stellar run in the stock markets this year. Right from pet food services providers, both online and offline, to pet groomers, to pet healthcare ecosystems have been on investors’ radar following the onset of the pandemic globally and in the United States.
Here’s a look at a few stocks in the pet-care industry that have performed well so far this year.
Leading among the pack is a Florida-based online pet superstore Chewy that is now reportedly worth nearly $30 billion. Investors in its shares will be a happy bunch looking at that whopping 132.57% return on a year-to-date basis.
The coronavirus restrictions have pushed investors to buy more goods online and Chewy seems to have been a beneficiary of this trend. For the quarter that ended on August 2, the company reported net sales of $1.7 billion, a mammoth 47% increase compared with the same period of last year.
The New Jersey-based company manufactures fresh and refrigerated food for pets and claims to use natural ingredients in preparing them. Its stock has more than doubled in value, rising 108.57% on a year-to-date basis.
Amid the coronavirus crisis, more pet parents choose to opt for healthier meal options for their pets, benefiting the likes of Freshpet. A testament to that trend is the strong 33% net sales growth that the company reported in the recent quarter.
“The company is seeing upticks in repeat business and retail locations served yet is still in the early stages of really marketing its brand to the public. In other words, it has sustainable double-digit growth potential,” as per this report by The Motley Fool.
Idexx, an animal health products maker, has returned a little over 58% so far this calendar year for its investors.
As the healthcare crisis gripped humans, pet parents have also bet on taking extra care for their pet family members, boosting sales for the likes of Idexx. In the previous quarter, the company reported a 20% growth in its earnings per share (EPS) at $1.72 per share, while revenue had risen to $637.6 million for the quarter.
PetIQ is a pet healthcare services provider, with segments of veterinary clinics, manufacturing, and distribution, along with being an animal health partner to its retailers. Its stock has risen nearly 29% so far this year and is likely to be on investors’ radar given that it is due to report its earnings on November 5. According to a Zacks report, analysts expect the company to report full-year sales of $789.73 million for the current financial year and are seen rising to $917.95 million for the next fiscal year.
One of the major names in the pet-care services, Zoetis has underperformed compared to its peers in the NASDAQ Composite, but has given higher returns than most companies listed on major indices such as the S&P 500 and the Dow Jones.
Zoetis is also the world’s largest animal health company, and it unveiled a new insurance unit earlier this year. The New Jersey-based firm’s subsidiary Pumpkin Insurance Services offered insurance plans that covered medical bills and vet visits. In terms of financials, the recent reported EBITDA for the company was $664 million, with a total debt to EBITDA at 2.65.
Earnings Week Ahead
As the U.S. pet industry lives up to its recession-resistant reputation, the valuations of industry stocks have seen a huge uptick. Many investors are concerned about the risk of buying shares that trade at a premium to the rest of the market. The coming weeks will be insightful for investors with Idexx & Zoetis reporting its third-quarter results on 29th October and 5th November respectively.