July 21, 2017 / 5:50 PM / 6 months 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.

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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