Stocks To Buy

Barking Up the Right Tree: 3 Top Pet Stocks With ‘Pawsitive’ Returns

The modern pet industry is a testament to the amounts that pet owners and animal lovers are willing to spend on their furry companions. In 2023, U.S. consumers alone spent $147 billion in the pet industry. That’s a whopping 60% more than just five years prior in 2018. Though investors might initially overlook the pet and animal industry, certain pet stocks to buy just make sense. 

Companies that offer innovative solutions, and necessary health and wellness products will thrive as pet ownership continues to increase worldwide. As younger generations delay having children, many are choosing to find love and affection through pets instead. In 2023, 67% of people aged 18 to 26 said they were picking pets over kids, at least for now. 

As people begin to see their animals less like pets and more like family members, spending on them increases. These three pet stocks to buy offer opportunities for growth and value in companies that are dedicated to the health and wellbeing of animals and their owners.

IDEXX Laboratories (IDXX)

IDEXX Laboratories (NASDAQ:IDXX) is an American-based company that sells products in over 175 countries across three divisions.

These days, pet owners are more willing to spend money on treatments that will prolong their pet’s lives. IDXX stands to benefit from this shift. The specialized veterinary tools that IDXX offers are necessary in order to diagnose animal ailments. And, as many of its products are one-time use, they have a recurring source of revenue. Also, there’s a continually growing need to more effectively protect the health of livestock as the worldwide demand for meat production increases. 

The company’s global footprint insulates it from troubles in any one specific market, and there is potential for its testing products to be utilized in an array of diverse applications. As it doesn’t just service the household pet industry but also research institutions and specialized veterinary instances, IDEXX can continue to expand into new markets and offer further growth opportunities for its shareholders.

In the past year, IDEXX is up only 7%, but it is up 103% over the past 5 years. Its Q1 results published last month were promising, with adjusted earnings per share (EPS) coming in at $2.8, beating the consensus estimate of $2.67 and up 10% year-over-year (YOY). The company reported sales of $964 million, an increase of 7%.

Freshpet Inc (FRPT)

Freshpet Inc (NASDAQ:FRPT) specializes in selling fresh, refrigerated pet food for dogs and cats. Its products are sold in grocery stores, pet stores and mass retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT). It also sells online through retailers like Chewy (NYSE:CHWY). With immense brand recognition, it was the first pet food company to offer refrigerated pet food across the U.S.

As people increasingly spoil their pets, consumer spending on higher quality food has increased. Feeding a fresh and natural diet to animals is also thought to reduce the chance of disease. So, pet owners see spending a little more upfront on fresh food as a way to reduce overall veterinary bills in the long run. From an investment standpoint, Freshpet has opportunities for market expansion internationally.

In the past year, FRPT is up 90% and it’s up 170% over the past 5 years. In Q1, it saw net sales growth of 33.6% up to $223.8 million. It reports net income of $18.6 million compared to the prior year net loss of $24.8 million. Adjusted EBITDA of $30.6 million is up substantially from the prior year at $3 million.

Trupanion (TRUP)

Trupanion (NASDAQ:TRUP) offers insurance plans for cats and dogs in the U.S., Canada and Puerto Rico. While it technically isn’t the same as a human health insurance plan, it advertises itself as health insurance for pets. 

Bank of America recently upgraded Trupanion’s stock from neutral to buy and increased its price target to $45 from $35. This is based on the idea that the insurance industry works in cyclical patterns. And Bank of America believes that Trupanion will start to benefit from the market shift and move into a more profitable period. 

Regardless of the technical analysis, the pet insurance industry is experiencing significant growth as pet owners increasingly prioritize the health and wellbeing of their animals. Trupanion, as a leading provider of pet insurance, stands to benefit from this trend. Its monthly subscription model means it has highly predictable revenue. And, its average subscriber life of 73 months means it is retaining customers for the long haul.

In the past year, FRPT is up 26%, though it remains relatively flat over a 5 year period. In Q1, subscription revenue increased by 22% YOY and acquisition spend decreased 23% YOY. Total revenue increased 19% to 306.1 million and adjusted EBITDA was $4.8 million compared to negative $4.9 million in the first quarter of 2023.

On the date of publication, Philippa Main did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Philippa Main is a real estate agent in Virginia and Florida who also does freelance writing, editing, and business development and marketing. She uses her broad knowledge of the real estate market to inform her investing decisions in an array of different industries. She also enjoys working specifically with women to educate them about finance and investing.

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