Freshpet (NASDAQ: FRPT) Stock Analysis: Is a Major Selloff Imminent?
Freshpet Inc. is a leading pet food and treats manufacturer with a market cap of approximately $6 billion. Founded two decades ago in Secaucus, NJ, the company went public in 2014 and experienced impressive growth until May 2021 when its stock hit an all-time high of $187 per share.
However, the following fourteen months saw a drastic decline in Freshpet’s stock price, plummeting 81% from $187 to $36 by September 2022. Despite the company’s strong revenue growth of over 30% annually, the stock’s crash was justified due to Freshpet’s cash-burning nature. Only recently did Freshpet start showing a profit, but its free cash flows remain deeply negative.
Moreover, Freshpet’s balance sheet took a hit in 2023 when it accumulated nearly $400 million in debt. Despite the stock’s recovery to over $136 earlier this year, trading at around $117 per share, Freshpet’s valuation is concerning. The stock currently trades at over six times sales and 160 times estimated 2024 earnings.
Technical analysis using the Elliott Wave theory suggests that Freshpet stock is poised for another significant selloff. The previous crash from $187 to $36 formed a five-wave impulse pattern, indicating a potential wave (C) decline to below the bottom of wave (A), possibly reaching the sub-$30 range. This would represent an 80% decline from the current price.
In conclusion, investors in Freshpet should be cautious, especially in the face of a potential recession. Fast-growing companies with high debt and low profitability, like Freshpet, are particularly vulnerable in such conditions. It’s essential for investors to consider these factors and the technical analysis provided before making any investment decisions in Freshpet stock.