A pet loves you no matter what. And despite – or maybe because of – them having some quirks, we love them too.
I guess that’s why pet ownership in America is just below all-time highs, which were hit during the pandemic when 70% of U.S. households had a pet.
These are my two rescue mutts, Lola (black) and Rocco (white).
We adopted Rocco on New Year’s Eve of 2015 and Lola on New Year’s Day 2016 – both a day and a year apart. They’re boy and girl, black and white… yin and yang in every way.
They’re also the neighborhood bullies, barking at delivery people and our neighbors walking their dogs. But remember, we love them anyways. And they love us.
According to the ASPCA, more than 23 million American households adopted a pet during the pandemic – one of the loneliest times. And those pets were spoiled.
The American Pet Products Association said we spent $123.6 billion on our pets in 2021.
That’s a lot of potential profits.
One company that benefited from this pandemic boom was Chewy (CHWY), an online retailer of pet-related products. From February to July of 2020, the company added more customers than it did during the entirety of 2019.
Its revenues in 2020 increased 47% from the prior year and reached $7.2 billion. And at times during the pandemic, CHWY shares traded about triple their pre-pandemic price.
Towards the end of 2020 and beginning of 2021, shares were trading for just over $100. But they’ve fallen steadily since then to today’s price just over $16.
Chewy reported earnings on Wednesday, and they beat some expectations. They posted a 7 cent per share profit, whereas analysts predicted a slight loss.
With that news, the stock initially shot higher but quickly fell back due to the company’s outlook. Chewy predicts net sales will climb just 2% in the current quarter and 4%-6% in 2024. That’s slightly lower than analysts expected.
Earnings certainly didn’t pull CHWY out of the doghouse (sorry, I had to). But let’s look at what the future might hold by running Chewy and a couple other stocks through my Quantum Edge system to see if the pet industry is worth putting our money into.
Chewy (CHWY)
Source: TradeSmith Finance and MAPsignals.com
We know Chewy’s stock has gone down significantly over the last few years, but maybe my system sees this as a good buying opportunity?
Nope.
Any stock with a Quantum Score of 70 to 85 is in my optimal buy zone, and CHWY’s score of 32.8 is far below it. Its bottom-of-the-barrel technical score of 17.6 really drags the Quantum Score down, but the fundamentals are also just mediocre at 54.2.
With a terrible score in my system and a less than exciting earnings report, Chewy is definitely not a buy.
Trupanion (TRUP)
Source: TradeSmith Finance and MAPsignals.com
Trupanion (TRUP) provides pet insurance, billing itself as the “#1 Pet Insurance in America” as chosen by veterinarians. While it doesn’t rank the worst in my system, it’s certainly not tops either.
With the Quantum Score, fundamentals, and technicals all being in the 50s, it’s middle of the pack.
TRUP’s one- and three-year sales growth is good at 22.5% and 30.4%, respectively, and it announced better-than-expected earnings last month. However, its stock fell 35% just the next day on Feb. 16 when Trupanion warned that an audit discovered weaknesses within their financial reporting.
That’s probably why we see a Big Money buy signal (green bar) on Feb. 15 followed by a Big Money sell signal (red bar) the next day with that 35% dive.
Source: MAPsignals.com
With a weak rating in my Quantum Edge system and potential accounting problems, TRUP is also not a buy.
Freshpet (FRPT)
Source: TradeSmith Finance and MAPsignals.com
Freshpet (FRPT) makes refrigerated pet food for cats and dogs. I don’t know about you, but I see their commercials frequently – the ones where a friend questions why the pet owner keeps pet food in the fridge.
FRPT has the best analytics of the bunch, with a Quantum Score just under the optimal buy zone at 69. It also has an impressive Technical Score of 85.3, thanks to a one-day pop from $90 to $110 after better-than-expected earnings in late February.
But even though earnings topped excpectations, FRPT’s Fundamental Score remains low at 45.8. The big drag is that the company still doesn’t make money. Losses are shrinking and expectations are for a profit, but that’s where investing becomes “here’s what we think will happen” instead of “here’s what we know is happening.”
We do see two Big Money buy signals in the last 30 days and three in the last 90, as some investors are willing to bet on coming profitability.
Source: MAPsignals.com
But until that shows up in the data, FRPT doesn’t give me the high probability of success that I can find in other stocks.
When we look at the data around pet-related companies, I don’t see any great opportunities at the moment. That may well change, but until then, our money is much better spent by spoiling our current pets and adopting new ones.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
P.S. While pet companies aren’t showing up as good opportunities, my Quantum Edge system helps me find those rare stocks with impressive fundamentals, strong technicals, and have Big Money buying in.
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