There is currently a pet boom taking place in the Western World. Due in part to millennials favoring pet ownership over starting families, the pet care business is red-hot. Likewise, pet stocks are providing investors a whole new way to earn sizable returns.
In 2015, the pet industry was worth $60 billion. Just two years later, it was worth $70 billion, and estimates for 2019 put the industry around $75 billion.
According to the American Pet Products Association, nearly 85 million American households have a pet. In total, pet ownership has gone from 56% to 68% over the last 30 years.
On top of the overall increase in pet ownership, new trends in pet care can account for this rapidly growing industry. Everything from food to end-of-life services has changed with the times to provide innovative solutions to pets and pet owners.
So how can an investor profit from the booming pet industry? Which pet stocks can lead the pack, and which should be left in the dog house?
Pet Stocks: Trupanion
Trupanion (NASDAQ:TRUP) is the largest medical insurer for cats and dogs in the United States and Canada. The company was founded in 2000 and is headquartered in Seattle, WA.
Even though the US leads the world in pet care spending, it hasn’t embraced pet insurance as thoroughly as some others have. Approximately 1% of pets in America are insured, considerably less than in UK (10%) and Scandinavia (25%).
Still, Trupanion has a $1.3 billion market cap. TRUP shares are currently priced at $37.22, up nearly 40% from this time last year.
In fact, business has been booming for the company. In November, Trupanion processed its one-millionth veterinary invoice for 2019. On average, it processes more than 80,000 claims per month.
Since 2000, the company has paid nearly $1 billion in veterinary invoices.
With a 98.58% retention rate, Trupanion enjoys an incredible recurring revenue stream. As Americans begin to embrace pet insurance, there will be plenty of growth in this underserved market.
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Pet Stocks: Petmed Express
Founded in 1996, online pet pharmacy Petmed Express Inc (NASDAQ:PETS) sells pet medications and other health products directly to consumers.
After struggling through most of summer 2019, PETS shares suddenly doubled in value in October. The stock is now trading at $23.46, roughly equal to its price a year ago.
A dividend stock, Petmed Express reported $0.33 earnings per share for Q2, beating Thomson Reuters’ consensus estimate of $0.26. The company also had a return on equity of 20.45% and a net margin of 9.62%.
On average over the last three years, PetMed Express, Inc. has grown earnings per share (EPS) by 14% each year. In the last year, however, its revenue is down 4.1%.
Whether or not the company can get back on track remains to be seen, but with the growing pet care boom, this is Petmed Express’s best chance to show value to its investors.
Pet Stocks: True Leaf
BC-based True Leaf Brands Inc. (CSE:MJ) (OTCQX:TRLFF) owns both a cannabis-focused subsidy and a pet-care-focused subsidy.
Its pet-care focused arm, True Leaf Pet Inc., is dedicated to selling plant-based wellness products that improve the quality of life for companion animals. This newfound division recently led True Leaf to post its best fiscal results to date.
In the company’s Q2 2020 fiscal report, for the three months ended September 30, 2019, the pet-care division reported revenue from global sales totaling $706,752 CAD. This is a 70% increase over the first quarter of fiscal 2020 and a 24% increase year-over-year.
This revenue will help sustain the company as it builds up its cannabis division, which recently secured licenses from Health Canada to cultivate, process, and sell medical cannabis.
After reaching a peak of $1.77 in mid-2018, MJ shares have tumbled with the rest of the cannabis industry. The stock is currently at $0.12, its lowest price in four years. However, as the company’s pet division is showing impressive revenue growth, True Leaf may be approaching a turning point.
All three of these pet stocks have shown value but watch them closely to see if they behave. And keep in mind that there are more animals involved in the stock market than just bulls and bears.
Featured image: DepositPhotos © vonnewierink
