July 21, 2017 / 5:50 PM / a year ago

Puppy love keeps IPO investors on the leash

NEW YORK (Reuters Breakingviews) - A case of puppy love just swept over the stock market. After Snap, Blue Apron and YogaWorks appeared to spell doom for initial public offerings of trendy, fast-growing businesses, shares of PetIQ jumped by a third in their Friday debut after having priced at the top of the range. A more sensible valuation helped the maker of canine treats and medicine, but it also may have wagged the dog.

Puppies are seen holding for photo with the cherry blossom flowers blooming near the Washington Monument in Washington, U.S., March 25, 2017. REUTERS/Yuri Gripas

Like social media, meal kits or body-and-mind studios, PetIQ is capitalizing on a hot and hyped area. Some $7.4 billion worth of pet treatments for tapeworm, ticks and the like were sold in the United States last year and sales are expected to grow by a fifth in the next few years. Unlike its recent IPO predecessors, though, PetIQ managed to turn a profit, albeit a small one. In the first quarter, the firm generated a bottom line of about $4 million on some $67 million of sales.

Beyond the recent move into the black, PetIQ also cuddled up to investors. With some 20 million shares sold at $16 each, the Idaho-based company was initially valued at $322 million. That’s less than two times 2016 revenue, about half what retailer PetSmart paid for e-commerce rival Chewy in May. Blue Apron initially tried for a similar multiple and YogaWorks also had been seeking more than three times sales before yanking its IPO earlier this week.

Just like its voguish share-selling peers, though, PetIQ remains vulnerable to competition. Blue Apron shares suffered, for example, after Amazon revealed plans to box up ingredients and recipes, too. PetIQ counts the e-commerce titan as a client, but that doesn’t mean it – or other retailers or drugmakers like Perrigo – won’t someday produce and market rival products. Even for pet-supply investors, it can be all too easy to forget what a dog-eat-dog world it is.


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