In the world of value investing, not all that is gold glitters… like Ohio-based OurPet’s Company, for example. OurPet’s Company (OTCQX: OPCO) is a leading proprietary pet supply company that designs, produces, and markets a broad line of innovative, high-quality accessory and consumable pet products under the OurPets® and Pet Zone® brands in the U.S. and international markets. Its yearly revenues have been rising at a steady clip since its inception over 20 years ago and so, too, have its profits. Yet OPCO’s valuation is way below what you might expect. Could this be a case of investors eschewing value because they don’t like the packaging?
No, you may argue. Investors are rational. They make decisions that maximize utility. The rational investor will base his decision on expected returns. Yet, we know now that that is not entirely true. Despite our claims to be rational, we demonstrate a great deal of ‘risk aversion’. We don’t like to lose. We will play it safe because the pain of losing a dollar is greater than the pleasure of finding one.
However, if losing money causes pain, why then do we gamble? Several explanations have been offered. It may be that gamblers are a naughty subset of the population who, unlike their more mature brethren, are decidedly irrational. It may be that our attitudes to risk change with mood. On days when our world looks bright, we are prepared to take more risks than when things don’t look so good. Perhaps, gambling is seen more as entertainment. We would like to win, but if we don’t, at least we had a good time. Or is it because of all the idiosyncrasies that make us human? It isn’t rational, for example, to sacrifice your life to save a stranger. Yet, as ‘The Man in the Water’ (http://nnw.fm/4ujBI) has shown us, we each have the capacity to do just that.
So investors like glamour. If we say we’re invested early in Facebook or Google, wouldn’t we be regarded as savants? Isn’t that the way Warren Buffet works?
Irony aside, Buffet’s success is based on ‘value investing’. He famously said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” True value investing means picking up a bargain, companies whose stock prices don’t reflect their fundamental worth. In other words, buy it when it’s on sale.
OPCO is one such company. It prides itself on adaptability. CEO Dr. Steve Tsengas has remarked that one of the main rationales behind the founding of OurPet’s Company in 1994 was the lack of innovation in the pet industry at that time. In fact, so intent on the knowledge-based aspect of the enterprise were its co-founders, Dr. Steve Tsengas and Dean Tsengas, that they decided to focus on generating new and improved solutions for pet owners and ways of getting product to market rather than manufacturing. So, on the one hand, OurPet’s Company concentrates on innovation and design, and, on the other, on marketing and distributing its product line.
The company is focused on high-growth categories in the non-food segment of the pet products market. Healthy feeding/storage systems (http://nnw.fm/43nKJ) represent a $100 million a year market. Feline waste and odor control (http://nnw.fm/R8pdB) is a $250 million a year market. And the interactive cat and dog toys/accessories segment (http://nnw.fm/N7Fhy) is a whopping $1 billion a year market.
OPCO has been growing 50 percent faster than the industry rate. With a P/E ratio that has ranged between 12.5 and 14.5, OPCO is definitely a bargain buy.
For more information, visit the company’s website at www.OurPets.com
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