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.

Why Is Freshpet Not Exciting?

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.

1. Fewer Distribution Channels Limit its Ceiling

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.

2. Cash Burn Ignites Concerns

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.

3. Previous Growth Initiatives Have Lost Money

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.

Final Judgment

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 a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than Freshpet

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