How about an edge? What's the edge? I am thinking about the gigantic short position -- 62% of the float -- bet against Freshpet (FRPT) and I just don't see the merit to it.
Freshpet sits squarely at the intersection of two mega trends: pets and natural and organic. The company's thesis is pretty simple: why buy canned stuff for your pets, when you can get fresh and natural? Given that pet food is a $20 billion industry, this now profitable debt-free company with sales up 37% seems like a very junior growth entity.
When you consider that the management team knows the industry cold -- the CEO Richard Thompson ran Meow Mix until its sale to Del Monte Foods (DMPLF) for $700 million -- and that the company's got the mass merchants installing its fridges that hold the food in rapid cadence, you have to be puzzled about what's wrong with this picture.
I tore this one upside down last night, trying to figure out what's wrong with the story. Was it something else that Thompson had done? Hardly. He founded the incredibly successful American Italian Pasta in 1985 and ran it until 1991.
Was it a need for capital that will make Thompson have to tap the equity markets shortly? Nope, it has more than $30 million in cash. Is it that the big box retailers won't take it? Hardly, they seem to love it. Is it that the space is crawling with competition? Absolutely not. In fact, because you have to install the Fresh Pet fridge, which, of course, is well-branded , no one else is moving into a chain with this kind of food. Is it that pet owners won't spend the additional money on their pets? Nope. Not with that pace of sales.
I have interviewed Richard three times now, and I keep trying to put myself in the shoes of the shorts and I come back and say, "Why did Goldman Sachs (GS) actually put in its research that the wild card here is Thompson sells the whole company for a huge amount?"
To me, there are so many worries here I just can't imagine being short the darned thing. Which is why I invite anyone here to enlighten me about what I am missing.
Otherwise, I think it's a buy.