Shares of pet food company Freshpet (NASDAQ: FRPT) suddenly skyrocketed around 3:30 p.m. ET on Thursday, following a surprising report from The Wall Street Journal. Freshpet stock jumped as much as 24% higher today before closing the session up 16%.
According to The Wall Street Journal, investment management firm Jana Partners has acquired almost a 10% stake in Freshpet. The firm reportedly believes Freshpet can make operational improvements and ultimately sell itself to a larger company.
Jana Partners frequently takes active stakes in companies to push change. For instance, the firm recently succeeded in adding two people to the board of directors at technology company New Relic. And it's trying to get Encompass Health to merge with a peer, according to Reuters.
Jana Partners' involvement is apparently welcome news for Freshpet investors. The company is enjoying great growth. Through the first two quarters of 2022, net sales are up almost 38% compared to the same time period of 2021. However, Freshpet's loss from operations has more than doubled over this time to $34 million.
Jana Partners likely sees opportunity to clean up the bottom line. Whether that results in a sale remains to be seen. Moreover, it's fair to wonder what price tag another company would place on Freshpet. The company already trades at a price-to-sales (P/S) valuation of almost four, which is considered high by some.
But perhaps there is precedent for a rich acquisition valuation in the fresh pet food space. Earlier this year, privately held Mars purchased NomNomNow for $1 billion, according to Bloomberg. NomNomNow's sales aren't known. However, it's fair to assume they're far less than Freshpet's roughly $500 million in trailing-12-month sales.
Therefore, there may be short-term opportunity for investors if Freshpet makes itself an acquisition target. However, long-term investors need to remember that Jana Partners and Freshpet have yet to officially comment. For now, it's best to stay focused on the long-term fundamentals and assess the concrete details of Jana Partners' investment when they become available.
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