Freshpet, Inc Can't Grow Fast Enough To Please The Market We began to notice a problem with Freshpet (NASDAQ: FRPT) over the last year that has turned out to be quite an interesting story. After comparing notes, we discovered the Freshpet shelves were nearly empty in many areas the company operates in.

Freshpet, Inc Is Working At Full Capacity And Growing

We began to notice a problem with Freshpet (NASDAQ: FRPT) over the last year that has turned out to be quite an interesting story. After comparing notes, we discovered the Freshpet shelves were nearly empty in many areas the company operates in. Turns out, Freshpet wasn't struggling for business, it was struggling to keep up with business and doing all it can do to catch up. The reason shelves are are bare, or were bare, is because of demand. Now, more than two quarters into the company's accelerating growth plans, the Freshpet shelves are starting to look better and the results are showing the effect. The only problem is the market was expecting more.

Freshpet Has Robust Quarter, Reaffirms Robust Guidance

Freshpet had a great first quarter but only if you discount what the analysts were expecting. The $93.41 million in revenue is up 33.3% from last year but missed the consensus by 0.6% which makes it a big miss in the eyes of the market. The takeaways for us are the company grew 33.3% and is working hard to expand capacity to meet demand which will drive future growth.

Moving down the report, the company experienced upward price pressures and production hiccups that cut into the bottom line. The gross margins shrank 660 basis points under the influence of higher beef prices, the February snowstorms, and higher processing costs as the company works to expand key facilities. The silver lining is the impact of February snowstorms is already gone and processing costs should become re-leveraged as production increases along with capacity. The bad news is that, for this quarter at least, the GAAP loss widened from last year and missed the consensus by a fairly wide margin.

As for guidance, the company says it is on track with its expansion and that, along with improved retail conditions, will help it meet its F2021 goals. As of now, the company is expecting top-line growth to exceed 35% for the year and top $1.25 billion by 2025. While good, the guidance is also little more than the market was expecting and offered no catalysts for the bulls.

"With rapidly improving retail conditions and increased capacity in place to support strong growth, we are in position to deliver our 2021 guidance and remain bullish on our 2025 'Feed the Growth' goals of 11 million households, $1.25 billion in net sales and a 25% adjusted EBITDA margin. We are changing the way people nourish their pets forever …" commented Billy Cyr, Freshpet's Chief Executive Officer.

The Analysts Like What They See

The analyst's community is overwhelmingly bullish on the stock but have differing opinions about its valuation. The current consensus estimate is about 18% below the price action even with today's big decline while the more optimistic estimates have the stock trading much higher. The last two upgrades were issued after the Q1 report and have the stock trading closer to the $205 level or about a 20% upside.

Looking at the chart, it is clear the Freshpet is in a very strong uptrend and today's decline has not altered the outlook. If anything, the market still has a way to fall before meeting back up with the trend. If this stock were to retreat back to the trendline we would consider it a strong buy. Until then we consider it a caution buy with the caveat another 5% to 10% decline may be in store.

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