Wall Street Doesn’t Own a History Book

December 18, 2020

Wall Street really likes to test history.

And we all know what they say about doing the same thing, again and again, expecting a different result.

BarkBox, a company that ships out treats and dog food through a subscription model, is now set to go public early next year through a reverse merger with Northern Star Acquisition Corp. (NYSE: STIC-UN).

The company, clearly inspired by what it’s seen out of rival Chewy Inc.’s (NYSE: CHWY) stock this year, wants in on the game.

These companies are certainly growing. And pet ownership has definitely soared throughout the last 12 months, as more people are stuck at home all day. But come on!

Does this remind you of anything?

Not to disparage these companies providing real services that customers do indeed value, but has anyone told them about Pets.com?

The Scariest Parallel in the Market

You likely know this story or at least a part of it. But it’s crucial to understand before you make a decision on either Chewy or BarkBox shares.

Way back in the late 90s, like today, tech was king.

Nowadays, having the word “blockchain” or “AI” in your corporate name might be enough to entice investors. Back then, it was “.com.”

To this day, one of the major winners from that period, Amazon.com Inc. (NASDAQ: AMZN) still carries that moniker. Many more, however, didn’t make it.

Possibly the most infamous of these companies that failed in spectacular manner was Pets.com. Like BarkBox and Chewy today, it sold pet supplies online.

The problem was, it spent all of its money, both before and directly after its February 2000 IPO, on advertising and brand awareness.

It had a float at the Macy’s Day Parade in November 1999. It had a Super Bowl ad right around its IPO.

But it didn’t really have customers. And whatever pet supplies it sold was at a loss. You see, instead of building up relationships with suppliers or trying to grow margins, its modus operandi was to just fake it until they made it.

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They never made it.

Shares opened at $11 in February 2000, going as high as $14. By November, investors had a chance to look at enough financial results to realize the company just wasn’t going to make it.

It went from the hottest IPO at that time to bankrupt in less than one year.

Niche Ecommerce

Now, I’m not saying BarkBox or Chewy have taken the same road as Pets.com. But the parallels are too striking.

Niche ecommerce can work. You see that in places like Etsy and Wayfair. But that’s few and far between.

That hasn’t changed since Amazon broke the mold right around Pets.com’s demise.

Amazon was a book retailer hellbent on taking down Borders and Barnes & Nobles. It did do that. But it found its real success after adding many non-literary items.

BarkBox’s only saving grace is that it offers subscriptions and customized boxes of treats and breed-specific food.

But if you can’t see the parallel, then you likely live on Wall Street. They certainly don’t.

Out of 15 analysts covering Chewy’s stock (one that more than tripled in less than a year), not one thinks it is priced too high right now. Two-thirds of those analysts, in fact, recommend you buy more shares at these prices.

I’m not going to say that Chewy is destined to fail. Nor is BarkBox, when its time comes in 2021. But Wall Street’s so-called experts aren’t even considering that they will.

Maybe it’s that these analysts are just too young to remember Pets.com and the last boom and bust in these kinds of stocks.

Maybe it’s that there’s more money in pumping up the next hottest IPO than there is in independent and unbiased analysis.

In any case, don’t let those powerful enough to make you forget lessons of the past sway your personal portfolio.

Whether these doggie companies actually become the next Pets.com is still up for debate. But they certainly aren’t the next Amazon.

To your prosperity and health,

Joshua M. Belanger
Executive Publisher & Founder

Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%

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