One of the benefits of writing weekly about the Top 100 Stocks to Buy is that I come across companies I've never heard of and probably never would have if not for Barcharts' daily look at high-flying stocks listed on U.S. stock exchanges.
Dogness Corp. (DOGZ) jumped at me as I reviewed the list this morning. First, it was up more than 13% on Monday. Second, it operates in the pet products space. My wife and I have fostered over 100 cats for a local rescue group in the past three years. We are dedicated pet owners.
However, while I’m always ready to listen to a good story about an up-and-coming pet business, the 460% gain in 2024 with little to show in revenues, makes me wonder if this stock isn’t in the grips of FOMO (fear of missing out).
Has Dogness stock gone to the dogs? I think so. Here’s why.
Where Did Dogness Come From?
It's hard to believe that Dogness has traded on NASDAQ for nearly seven years. The company went public in December 2017, selling 11 million shares at $5. Its history dates back to its incorporation in March 2009 in Hong Kong.
At its IPO in 2017, the U.S. pet care market was estimated at $19.1 billion. Today, it’s nearly $137 billion. In 2023, China and the U.S. accounted for 36.0% and 35.4%, respectively, with the remaining 28.6% from the rest of the world.
It generates revenues from three products: Traditional Pet Products, Intelligent Pet Products, Climbing Hooks and Other Products. The Climbing Hooks segment is a growth area for the company. In 2021, they accounted for 5.5% of total revenue, and in the first six months of 2024, they accounted for 11.4%.
That’s the good news.
The bad news is that in March 2023, Nasdaq warned the company that its closing bid price was below $1.00 for 30 consecutive days, putting it out of compliance with the exchange. To get back in compliance, it would need to have a closing bid price of $1.00 or higher for 10 consecutive days.
As is often the case in these situations, it completed a 1-for-20 reverse split of its Class A common shares on Nov. 7, 2023. Based on yesterday’s closing price, its pre-reverse-split share price would be $2.28, well into penny stock territory.
A Massive Valuation
In the six months ended December 31st, 2023, Dogness had $6.7 million in revenue and a $3.6 million operating loss. Sales declined 35.8% year over year, while the operating loss was flat compared to a year ago.
Based on its market cap of $581 million and 2023 revenue of $17.6 million, it’s currently valued at 33x sales. Based on a $6.93 tangible book value per share, its market cap is 6.6x its tangible book value.
One of the company’s publicly traded competitors in the U.S. is Central Garden & Pet (CENT). According to S&P Global Marketplace, its market cap of $2.1 billion is 0.6x sales, while its market cap is 4.1x its tangible book value per share of $8.52.
So, CENT stock is cheaper by both P/S and P/Tangible Book, and its trailing 12-month EBITDA (earnings before interest, taxes, depreciation, and amortization) is $341.1 million compared to Dogness's loss of $6.4 million.
Since it went public in 2017, the company’s best year in terms of sales and profitability was fiscal 2018 (June year-end), when it generated $30.1 million in revenue and $7.2 million in EBITDA, good for an EBITDA margin of 24%. It hasn’t come close since.
Meanwhile, Central Garden & Pet has increased its 12-month EBITDA in eight out of the last 10 years, while sales have increased in eight.
To say that Dogness is overvalued would be an understatement.
The Bottom Line on DOGZ Stock
A quick look at Dogness’s balance sheet shows that as of Dec. 31, it had an accumulated deficit of $2.2 million. In June 2019, about 18 months after its IPO, it had retained earnings of $11.8 million.
In 4.5 years, it’s managed to turn a positive into a negative. Put another way, its business has significantly worsened since June 2019, yet its valuation today is about 5x higher than in December 2017 at its IPO.
I no longer bother to see if a company is a meme stock. It wouldn’t surprise me if the Reddit crowd followed Dogness. With a pre-reverse-split price of $2.28, it wouldn’t surprise me if penny-stock fanatics weren’t manipulating it.
With a float of just 13.1%, this stock’s volatility is enormous. As I write this, it is down more than 13%, giving back everything it gained yesterday on a volume of just 60,000.
DOGZ is not a stock to fear you’re missing out on. Not by a long shot.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
