Freshpet ‘s Valuation Might Start to Matter Soon
2024.07.26 05:08
Freshpet (NASDAQ:) Inc. is a ~$6B pet food and treats manufacturer, founded 20 years ago and headquartered in Secaucus, NJ.
The company went public in 2014 and has been a wonder to behold until May of 2021 when the stock reached an all-time high of $187 a share.
The following fourteen months, on the other hand, were a complete disaster from which the share price still hasn’t fully recovered.
Between May 2021, and September 2022, Freshpet stock plunged 81% from $187 to $36. Despite the company’s high revenue growth of over 30% a year, that crash actually made sense.
That’s because FRPT is a cash-burning business. It wasn’t until the last two quarters that it finally showed a profit, albeit only an accounting one, since free cash flows remain deeply negative.
Not to mention that Freshpet no longer has a pristine balance sheet after loading up on nearly $400m of debt in 2023. So the more surprising thing is the stock’s recovery from the 2022 bottom of $36 to over $136 earlier this month, not the preceding collapse.
Currently, near $117 a share, Freshpet trades at over six times sales and 160 times its estimated 2024 earnings. Valuation doesn’t matter until it does. For FRPT investors, it soon might.
The Elliott Wave chart above reveals that Freshpet stock is ripe for another notable selloff. It shows that the crash from $187 to $36 took the shape of a five-wave impulse pattern, labeled 1-2-3-4-5 in wave (A).
According to the theory, a three-wave correction follows every impulse. Here, there is a simple A-B-C zigzag in wave (B) up to the 61.8% Fibonacci resistance level.
Wave B was an (a)-(b)-(c) running flat correction, where the a-b-c structures of waves (a) and (b) are also clearly visible.
If this count is correct, Freshpet is headed significantly lower in wave (C), whose targets lie below the bottom of wave (A).
This puts the sub-$30 area within the bears’ reach in the months ahead. From the current price of ~$117, that’ll be an 80% decline, again.
Especially if a recession hits, the stock prices of fast-growing, yet unprofitable and debt-laden companies are the most vulnerable. Freshpet ticks all the boxes.
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