2 Pet Care Stocks to Buy Even If You Don’t Like Dogs
August 26, 2021
Investing, at the end of the day, means creating long-term wealth for ourselves by buying into businesses, or stocks, that are (hopefully) doing good for everyone in the world.
That also extends to our pets. That’s because the pet care industry is big business and for investors, that means multiple opportunities to buy stocks that ride on this strong structural theme.
Global pet care spending is estimated to hit US$241 billion by 2026, up from the US$180 billion that was splashed out on our furry friends in 2020.
That represents a healthy compound annual growth rate (CAGR) of 5.2% in pet care spending.
Understandably, the pet care industry is traditionally seen as “recession-resistant” as owners treat their pets as family members and consider the costs of maintaining one a necessary expense.
Given today (26 August) is International Dog Day, I thought it would be a good time to focus on two pet care stocks that every investor can buy even if they don’t like dogs (or cats).
News about the Covid-19 vaccine has thrust many biotech firms into the spotlight. But that’s for humans. What about general vaccines for animals?
That’s where Zoetis Inc (NYSE: ZTS) comes in. It’s the world’s largest producer of medicine and vaccinations for pets. It also offers diagnostics, genetic tests and biodevices for animals.
Zoetis is a giant in the field – with about 300 product lines across eight animal species, 27 global manufacturing sites (see below) and a presence in over 100 countries worldwide.
Source: Zoetis investor relations corporate presentation
This key global presence in manufacturing means Zoetis has control over product quality and is also able to significantly expand its total addressable market (TAM) as it entrenches itself as a leader in pet healthcare.
In 2020, the firm clocked up revenue of US$6.7 billion, which was up 7% year-on-year, while its adjusted net income was up 5% year-on-year to US$1.84 billion.
So far in 2021, Zoetis continues to perform well as its business gains ground internationally. While overall revenue was up 26% year-on-year in the second quarter of 2021 (to US$1.95 billion), it was the international segment that stood out.
International revenue (ex-the US) amounted to US$924 million during the latest quarter, which was up 31% year-on-year while gross margin for the international segment saw an impressive 210 basis-point jump to 69.9%.
With spending on the health and wellbeing of pets worldwide only set to increase, Zoetis looks well-positioned to continue benefitting from this trend.
Online retail, otherwise known as e-commerce, has disrupted many industries. One such company that has taken this online model to pet care retailing is Chewy Inc (NYSE: CHWY).
It offers all sorts of pet care goods online, from pet food and toys to aquariums and pet supplements.
Chewy is a relatively new public company, having only gone public in June 2019. However, its business has been firing on all cylinders.
With CEO Sumit Singh – a former Amazon.com Inc (NASDAQ: AMZN) executive – leading the company, Chewy has seen phenomenal growth.
That’s mainly down the company being able to lure customers on to its platform for, what the company labels, “pet parents”.
Having grown its active customer count from 12.9 million in its fiscal third quarter 2019 (for the three months ending 3 November 2019), Chewy had 19.8 million active customers in its latest fiscal first quarter (for the three months ending 2 May 2021).
That’s an impressive nearly-seven million additional customers in just 18 months. Chewy has also introduced a popular scheme with customers called “Autoship”.
This allows regular deliveries of necessary and repeatable purchases – like dog food or cat litter – to be purchased at a perpetual discount.
In its latest quarter, Autoship customer sales increased by 34.4% year-on-year to US$1.48 billion. That outpaced the overall revenue growth of 31.7% year-on-year during the quarter.
New initiatives in areas such as telehealth for pets – Chewy’s own Connect with a Vet – mean Autoship customers can now have immediate access to licensed veterinarians for advice or health queries on caring for their pets.
Investing in a pet-centric society
The pet care industry is clearly one that is offering multiple avenues of growth that investors can explore.
As more and more people worldwide start to up their spending on their pets, from better food and toys to mandatory vaccines, Zoetis and Chewy are in a prime position to keep growing their businesses long into the future.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Chewy Inc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.