Headquartered in Dongguan, China, Dogness (International) Corporation (DOGZ) designs, manufactures and sells fashionable dog and cat products. The company assures industry-leading quality through its completely integrated vertical supply chain and world-class research and development capabilities.
By strategically allocating resources to manufacture and promote relatively high intelligent pet products within the integrated smart pet ecosystem, DOGZ’s stock has witnessed strong price performance over the past months. The stock has gained 36.7% over the past month and 106.6% year-to-date.
However, the company's negative profit margins and higher-than-industry-average valuation could make investors nervous and cause its share price to retreat in the near term.
Here’s what could influence DOGZ’s performance in the upcoming months:
External Financing
DOGZ recently completed an offering of 2,178,120 of common shares at $1.82 per share, which raised approximately $3.96 million in gross proceeds. The company intends to use the net proceeds from the offering for working capital and to expand its business, enriching pet lives through an expanded line of traditional and innovative tech products. However, according to pecking order theory, using equity financing as a funding source exhibits the company’s inability to generate adequate cash flows for its operational needs. Also, this may lead to equity dilution for existing shareholders and should be viewed as an alarming signal.
Poor Profitability
DOGZ’s 7.6% trailing-12-months EBIT margin is 20% lower than the 9.5% industry average. Also, its net income margin of 6.2% is 5.2% lower than the industry average of 6.6%. Furthermore, its trailing-12-months cash from operations of $3.75 million is 98.1% lower than the industry average of $195 million.
Premium Valuation
In terms of trailing-12-months Price/Cash Flow, the stock is currently trading at 38.14x, which is 208.2% higher than the 12.37x industry average. Also, its 6.15x trailing-12-months EV/Sales multiple is 293% higher than the1.56x industry average. Furthermore, DOGZ’s 5.09x trailing-12-months Price/Sales is 280.2% higher than the 1.34x industry average.
POWR Ratings Reflect Bleak Prospects
DOGZ has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DOGZ has a D grade for Value and Quality. The company’s higher-than-industry valuation justifies the Value grade. In addition, the company’s poor profitability is in sync with the Quality grade.
Of the 70 stocks in the C-rated Consumer Goods industry, DOGZ is ranked #61.
Beyond what I have stated above, you can view DOGZ ratings for Growth, Momentum, and Sentiment here.
Bottom Line
Robust sales growth and a sustainable product offering have contributed to DOGZ’s solid financial performance and price momentum lately. However, the company’s lofty valuation and negative profit margins could add uncertainties to the stock’s near-term prospects. Thus, we think DOGZ is best avoided now.
How Does Dogness (International) Corporation (DOGZ) Stack Up Against its Peers?
While DOGZ has an overall D rating, one might want to consider its industry peers, Mannatech Incorporated (MTEX), Societe BIC SA (BICEY), and Ennis Inc. (EBF), having an overall A (Strong Buy) rating.
DOGZ shares fell $0.13 (-2.98%) in premarket trading Tuesday. Year-to-date, DOGZ has gained 104.74%, versus a 26.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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