Pets are comforting, but shares of pet-focused companies may not be

Mon Feb 15, 2016 10:02am EST
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By Tanya Agrawal

(Reuters) - Come economic rain or shine, Americans spend $60 billion a year on their pets, a fact that has led investors to seek shelter in pet company shares when the stock market goes to the dogs.

The sector's reputation as an all-weather investment may be vastly overstated, however.

Shares of companies that feed, groom, treat or pamper pets generally outperform the overall stock market during recessions and market routs, but that doesn't mean they all do well.

Over the last year, for example, natural pet food companies Freshpet Inc FRPT.O and Blue Buffalo Pet Products Inc BUFF.O have nosedived as thin margins and competition have eaten into their profits despite the popularity of precious puppy food.

Freshpet is down 75.4 percent from its April 2014 peak, while Blue Buffalo, which went public in July 2015, has seen its shares fall 43 percent since then.

In the last recession, some stocks did well and some did not. While the S&P 500 was losing 57 percent between October 2007 and March 2009, shares of online pet pharmacy PetMed Express Inc (PETS.O: Quote), animal health testing company Idexx Laboratories Inc (IDXX.O: Quote) and vaccine distributor Henry Schein Inc HSIC.O fell 7.1 percent, 49.8 percent and 45.5 percent respectively.

So far this year, with the S&P down 10 percent, PetMed, Idexx and Henry Schein have fallen 5.5 percent, 7.6 percent and 0.2 percent respectively.

"The thing with the retail side is that it's a much more competitive business, so you can get your dog food at a 100 different stores and they're all trying to protect razor-thin margins," said Jarl Ginsberg, portfolio manager of the Columbia Small and Mid Cap Value Fund, in New York.   Continued...

Dog food is seen laid out at the Hotel Pennsylvania ahead of the Westminster Dog Show in the Manhattan borough of New York February 13, 2016. REUTERS/Andrew Kelly