NEW YORK (TheStreet) -- Specialty wholesale pet food distributor Freshpet (FRPT), which went public last November, has huge ambitions. After raising almost $160 million in its initial public offering last year, the maker of healthy food for cats and dogs recently laid out its plans to grow its U.S. distribution locations from their current 13,000 to 35,000.
The Secaucus, N.J.-based company, which sells its products under brands such as Dognation, Dog Joy and Nature's Fresh, wants to be a leader in refrigerated pet foods, and says its products are better alternatives to dry or canned food. Its recent results, including a 35% year-over-year jump in third-quarter revenue, would suggest that customers agree.
What investors should focus on, however, is how the company, founded in 2006 and still operating at a loss, plans to make money. Nearly tripling the number of outlets it serves will come at the expense of near-term profits.
As of the most recent quarter, expenses climbed almost 7% year-over-year, resulting in an operating loss of $1.3 million. This is because its costs, which account for 54% of its revenue, exceeded gross margins, which stand at 48%. And considering Freshpet shares are trading at 204-times full-year 2015 earnings estimates of 9 cents per share -- compared to an average forward P/E estimate of 17 for S&P 500
FRPT Year to Date Price Returns data by YCharts
Freshpet stock closed Friday at $18.43, down 1.71%. The shares are up 8% year-to-date, outperforming not only the broader averages, but also the SPDR S&P Retail ETF (XRT), which is up just 2.8%, and includes prominent retailers like Kroger (KR) and Whole Foods (WFM).