Analysis: Freshpet stock surge post-results takes the market by surprise

Freshpet posted higher-than-expected net sales earlier in February, announcing it brought in $766.9 million (€706.8M) in sales, an increase of nearly 30% over 2022.

As reported by specialist media, the market took these results with optimism, and the company’s stocks surged by 23%.  

“When you look at the results [that] they had provided guidance for the full year for, and they only had one quarter left, but in that one quarter, they beat the guidance for both revenue and profits, and that surprised both myself and the market,” explains Kris Inton, Equity Strategist, Consumer Sector at Chicago-based investment firm Morningstar Research Services. 

Inton further explains that the surge in its share price was due to the fact that Freshpet is a growth company and relatively small compared to the broader pet food industry. 

“I think the interpretation by the market was that this company is starting to reach a size of scale, where profits can happen more regularly,” he shares in an interview with GlobalPETS. 

Niche sector

Experts believe that Freshpet’s offering—selling fresh pet food straight out of refrigerators—currently does not have much competition.

“The challenge for them that’s been somewhat unique is that there’s not a lot of pet food refrigerators everywhere, and so part of their growth story has been getting their own refrigerators in stores across the US,” adds Inton.

So, while they incur costs for fitting shops with those refrigerators, the positive financial results have signaled that they are starting to generate more sales through this concept. 

However, the Equity Strategist warns that this could also be the start of competition emerging within this segment. 

“The one thing I kind of hesitate on is that the stock is a little bit overpriced,” Inton says. “There are some really big competitors in pet food who have trialed a fresh pet food product last year. 

“And while they [have] not expand[ed] from a trial yet, it doesn’t mean they have given up on fresh pet food. So, I think that all the success will eventually invite competition.”

Hefty forecast?

Freshpet’s guidance for 2024 is “at least” $950 million (€875.5M), which Inton describes as a “pretty hefty” growth number, a 24% increase from 2023. 

From a profit perspective, Inton forecasts the company will hit the middle range of their adjusted EBITDA guidance—around $104 million (€95.1M)—which he said is “pretty significant and probably possible.”