FRPT Freshpet

Sector financial performance:

This company, which primarily produces and distributes dog and cats food products, has been grouped into pet food& supplies sector in pets industry.
It seems that the demand for pet food and supplies has been strong and continuingly growing in the past several years as indicated by increasing sales volume of pet food (5-9% annual growth) and supplies (3-4% annual growth) of typical companies in this sector. Accompanied with increase in pet food sales volume, revenue of companies in this sector has also been driven by sales’ shifting to higher price products.
Most of companies’ margins have been improved as a result of increased revenue, saving of costs, and sales’ shifting to higher margin products. The typical gross margin for pet food company is about 46% (including depreciation and freight), SG&A is about 23%, and operating margin is about 23% in 2018. The typical enterprise cash flow/sales ratio is 15%.
The typical enterprise price/EBI (adjusted with tax shield) ratio is 37 (pet food) and 27 (pet supplies).

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Company performance:

It seems that the demand for pet food of this company has been increasing fast since 2016 as indicated by the increase in the same store/fridge revenue.
The first three months of fiscal 2018 compared with the same period of 2017 (ended March 31 2018)
Net revenue increased 28%.
Retail fridge locations increased 7.3%.
Fiscal 2017 compared with fiscal 2016
Net revenue increased 18%.
Retail fridge locations increased 8.4%.
Fiscal 2016 compared with fiscal 2015
Net revenue increased 15%.
Retail fridge locations increased 10.6%.
Its gross margin (including depreciation excluding freight) was flat since 2015(to about 47%) as a result of combination of expansion of distribution channels and sales increase. Its SG&A as percentage of sales down to 48% due to saving of costs and this resulted in an improved operating margin of about -1% in 2018.

Stock performance

This company is having an enterprise price/sales ratio of 3.6. We think that its stock is being relatively overvalued compared with its peer - BLUE BUFFALO PET PRODUCTS.

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