Freshpet, Inc. (FRPT): A Pet Food Player Short Sellers Love to Hate - InvestingChannel

Freshpet, Inc. (FRPT): A Pet Food Player Short Sellers Love to Hate

We recently published a list of 10 Worst Booming Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Freshpet, Inc. (NASDAQ:FRPT) stands against other worst booming stocks to buy according to short sellers.

Are We Really In September?

September has historically been one of the worst months for US stocks. Considering this and the performance of big tech, particularly AI stocks, in the first week of the month, many investors have been shocked by the performance of the S&P 500 and the Nasdaq Composite Index in the second week of September. Both indices showcased their best performance this year during this week, and both were up for five days in a row. So, it’s not surprising that many investors are confused about what this means and how this even came about in the first place.

According to Tom Lee, Co-founder and Managing Partner at Fundstrat Global Advisors, this is the type of performance investors can expect to see over the next eight weeks up to Election Day – and perhaps even for a couple of weeks after that. With the much-awaited Fed meeting also coming up next week, Lee expects more support especially since we already have enough reason to believe that the Fed is going to make some cuts. According to Lee, with the inflation data coming in better than before and with the labor markets needing more support, the Fed’s actions will give the markets more confidence. This will translate into stocks trading well in the upcoming weeks.

Expected Future Trends

Lee noted that, at least for the next 12 months, investors should be more confident about the markets and their performance. The potential rate cut is not the only reason for this. Another positive factor is the upcoming election – according to Lee, historically, the markets have always performed well in the months coming after an election. This past trend is making the November-December period also look good for stocks in the US. Lee also commented that the policies of both Presidential candidates are good enough for the markets to do well in 2025 as well. So, even if investors see a little more turbulence, the long-term expectations for the market seem largely positive.

In terms of what stocks investors should be looking at in this new environment, Lee noted that the general rule for any investor should be to buy the best companies in any area first. These would be the companies that are able to beat any type of cycle and promise high returns to their shareholders, basically blue chip stocks. At the same time, Lee expects that when the Fed moves rates back toward neutral, cyclical and small-cap stocks will also benefit immensely from the tailwinds created by this move. Because of this, Lee expects small-caps to do really well in the next 12 months.

These insights have highlighted that the markets are now on an upward growth trajectory, and we’ve been seeing a lot of stocks generate immense returns because of this. However, many such booming stocks are being relentlessly shorted, which may brew confusion among investors about which companies to buy now. We’ve thus compiled a list of some booming stocks that short sellers consider to be the worst players in the market and explained whether you should consider buying them or not.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Freshpet, Inc. (FRPT): A Pet Food Player Short Sellers Love to Hate A close up of a grocery store shelf with packages of the company’s pet food products on it.

Freshpet, Inc. (NASDAQ:FRPT)

Year-to-Date Performance as of September 14: 59.9%

Short % of Shares Outstanding as of September 14: 10.1%

Number of Hedge Fund Holders: 39

Freshpet, Inc. (NASDAQ:FRPT) is a packaged foods and meats provider based in Secaucus, New Jersey. It provides natural, fresh meals and treats for pets, specifically dogs and cats.

Freshpet, Inc. (NASDAQ:FRPT) is a reputable player in the pet food market and has been gaining market share in this space for several years. In the second quarter, this market share allowed the company to generate revenue of $235.3 million, up 28.3% year-over-year. Its gross profit margin also rose from 32.3% to 39.9%.

Considering the positive results, Freshpet, Inc. (NASDAQ:FRPT) raised its full-year guidance. It now sees revenue growth of at least 26%. The primary reason for such growth is its household penetration since Freshpet, Inc. (NASDAQ:FRPT) has been expanding its presence across the globe, with more and more pet owners preferring its products for their pets. This growth trajectory highlights that short sellers may be wrong about Freshpet, Inc. (NASDAQ:FRPT), especially since several hedge funds still continue to hold a stake in this stock, and investors are confident in its growth potential for the next few years.

There were 39 hedge funds long Freshpet, Inc. (NASDAQ:FRPT) in the second quarter, with a total stake value of $872.5 million.

Artisan Partners mentioned Freshpet, Inc. (NASDAQ:FRPT) in its fourth-quarter 2023 investor letter:

“We ended our investment campaigns in BlackLine, Shoals Technologies and Freshpet, Inc. (NASDAQ:FRPT) during the quarter. Freshpet sells refrigerated, fresh pet food. Our thesis is predicated on the company sitting at the intersection of two significant, long-duration trends: health and wellness, and the humanization of pets. It also has a sticky customer base, high barriers to entry and a unique distribution model. However, given a challenging backdrop of consumers trading down and increased promotional activity, we decided to move on as the stock approached our estimate of private market value.”

Overall, FRPT ranks 10th on our list of 10 worst booming stocks to buy according to short sellers. While we acknowledge the potential of FRPT as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FRPT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.

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