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Bark Stock Is a Long Shot, But It Could Jump 10x

While the bulk of your portfolio should consist of companies you know will be around a few years from now, there's nothing that says you can't take the occasional well-calculated flier. If things pan out, great! If not, it's not the end of the world.

With that as the backdrop, if you're looking to take a long shot on a high-risk, high-reward name right now, take a look at Bark (NYSE: BARK). The company makes a variety of dog toys and treats, capitalizing on the world's ever-increasing love for -- and spending on -- our doggos. Better still, Bark markets its products in a powerfully unique way.

Image source: Getty Images.

In the right market at the right time

The United States loves its pets. The American Pet Products Association estimates we spent on the order of $110 billion on them last year, with most of that going for food and treats. Dogs got the lion's share of that love, with 69% of U.S. households catering to at least one canine friend. That makes dogs the most popular pet choice by far, with cats living in a distant-second 45% of the country's homes.

The rest of the world isn't quite as ga-ga over their critters as the average American is. Nevertheless, Fior Markets forecasts the planet will spend nearly $360 billion on its pets in 2027, Quite a bump from 2019's $250 billion total and a compound annual growth rate of 6%.

In other words, the pet market in general and dogs, in particular, make for a great business opportunity.

Enter Bark, though you may know it better by its flagship product, Bark Box, a subscription-based box of toys and treats that shows up on dog owners' doorsteps every month, to the delight of those owners' dogs. Bark is also the name behind Super Chewer chew toys, Bright brand dental chews, and Eats dog food, all of which are also available on a subscription basis. You'll also find some of its products available at other online and brick-and-mortar pet stores, although the company would clearly like to sell as many of its own goods as it can directly to consumers; that's far more profitable revenue. (In this vein, well over 80% of this company's revenue comes from direct dealings with its customers -- more on that in a moment.)

And Bark is knocking it out of the (dog) park, so to speak. Sales are up 42% through the first three quarters of 2021, and the company continues to inch toward profitability. Analysts collectively expect more of the same sort of progress going forward too. While it still won't be enough to get Bark out of the red, they are looking for sales growth of nearly 29% next year, as more and more pet owners embrace the ease and simplicity of Bark's products and service.

A growth edge (or two)

This is the risk, of course. Bark is neither profitable nor expected to be profitable in the foreseeable future. In the meantime, it faces competition on all fronts, ranging from established brick-and-mortar names like PetSmart to dedicated pet-supply shopping websites like Chewy. Amazon is also an online pet goods venue no start-up wants to tangle with if it can avoid it. Bark can't avoid it.

Bark's got two big things going for it that aren't readily apparent though.

One of those tailwinds is that consumers really are falling in love with the subscription-based boxes Bark offers. The company now boasts more than 2.2 million subscribers that contribute reliable recurring revenue to Bark's top line. That's up 30% from the company's subscriber headcount from just a year earlier, yet still represents a tiny fraction of the 48 million U.S. households the American Veterinary Medical Association says have a dog.

The other advantage Bark has on competition like PetSmart, Amazon, and Chewy is that the company uses data to custom build an assortment of treats and toys specifically for each and every dog that's lucky enough to get a monthly box. All told, there are more than 200,000 different assortments of treats and toys for Bark's barking customers.

All of this internally collected data also means Bark's equipped to cross-sell and up-sell goods to pet owners who are already buying directly from the company. As the company's investor literature puts it, Bark is "there every step of the way," from bath to exercise time to meals to ... well, "accident" cleanup. No other pet supply venue is leveraging data quite the way Bark can, and is.

Bark is a cheap-enough gamble

Again, Bark is currently unprofitable. That makes it impossible to value on an earnings basis, and its future profit picture is fuzzy at best.

On a sales basis though, this $483 million outfit is valued at less than this year's analyst-projected top line of $505 million. That makes it about half as cheap as a barely profitable Chewy is on a revenue basis and roughly a third as cheap as Amazon shares.

Data source: Thomson Reuters. Chart by author.

It also means that any profits -- no matter how small they might be -- will make Bark stock relatively cheap on an earnings basis once the company moves into that stage of its life. Assuming Bark could expand into a company generating a mere $250 million in earnings in an industry that's worth more than $100 billion, an earnings-based price multiple of 20 would translate into a market cap of $5 billion. That's about 10 times its present value. In the meantime, progress toward profits should be enough to buoy the stock, even if erratically.

Or, think about it like this: Plenty of investors have done well with lesser-developed stocks.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon and Chewy, Inc. The Motley Fool has a disclosure policy.


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