Today we have a moderately speculative idea.: take shares of the service online sale of medicines for animals PetMed Express (NASDAQ: PETS) due to the popularity of the sector.
Growth potential and validity: 14,5% behind 14 Months; 34% behind 3 of the year; 10% per year for 15 years. Yield excluding dividends.
Why stocks can go up: there is a lot of hype around the topic.
How do we act: take now 29,67 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
What the company makes money on
PetMed Express is an online store, Where do you sell medicine for cats?, dogs and horses. Sold here as medicines, available by prescription only, so and so, for the purchase of which prescriptions are not required.
According to the annual report, According to sales channels, the company's revenue is distributed as follows::
- website and mobile application 83,9%;
- company contact center 16,1%.
Actually, it's all, what can be said about the company's business: no more information in the report. The company operates only in the USA.
Arguments in favor of the company
Promising sector, in general,. As you remember from a recent review of Chewy, the pet products market in developed and not very developed countries is very promising and growing.
Worth considering, that many millennials are willing to spend more on the health of their animals, than on your own. Health Pocket survey showed, what if millennials had to choose between going to the vet or going to the doctor, then 62% of the respondents will choose a veterinarian and only 38% - doctor.
In this regard, PetMed can hope for revenue growth in the long term and just for the attention of retail investors., who have read, what is it promising.
Certainly, in fact, the market for pet products is only growing faster than the market for human products - that is, not much. This is clearly seen in the dynamics of sales in the largest chains of pet products - there is growth, but it's not insane. At the same time, there is a significant growth, and the hype around this sector will still last for some time. Actually, therefore, the shares of "animal" companies have risen very sharply during the pandemic, although growth was not backed by equally strong growth in financials.
Price. The company's capitalization is only 601,39 million dollars and current P / E — 21,39. Truth, future P / E is higher here - 33,7, but it's still not much. In general, it is inexpensive - this moment will help pump the company's capitalization by a crowd of retail investors.
Can buy. That fact, what business, working in the field of online commerce, boasts a good final margin - over 9% from proceeds, - it's a miracle.
Considering this and all the points described above, the company may well be bought by someone larger.
Wrecked. The company pays 1,2 $ dividend per share per year, which gives approximately 4% per annum. By today's standards, this is a very steep yield., therefore, stocks can grow strongly only due to the influx of fans of "divas".
What can get in the way
Everything is not so great. The removal of quarantine and the increase in the number of visits by pet owners to veterinarians hit the company's business. Pet owners usually buy the lion's share of medicines from veterinarians - sales and profits of PetMed have dropped markedly, as pet owners buy less pet medicines online. This, certainly, will not kill the company's business: she occupied her niche even before the pandemic. But without a repeat of large-scale quarantine, the growth rate of this business will be much slower., what investors would like.
Wrecked. The company spends on payments 24 million dollars a year - almost 80% from profits for the past 12 Months. And although the company is fine with the money: amount in accounts 3,5 times the total amount owed, - there is a possibility, that dividends will be cut or canceled altogether. I think, that the decision to expand could be the catalyst for this.
With a sharp slowdown in business growth due to the lifting of quarantine, PetMed may begin to expand in related areas. For example, will start selling food for animals or develop medicines on its own. And this expansion will cost a lot of money. Dividend cuts hit share prices hard, because for 5 years of consistent increase in payments, a whole group of leeches has formed, holding these shares just for the sake of payments.
Evaluation. Target market of the company, according to her own estimates, - This is 6 billion dollars. With 290 million dollars in sales over the past 12 months PetMed takes on it 4,83%. With its capitalization, the company is worth as 10% market, that is more than twice as expensive. Probably, investors will not pay attention to such dissonance: there are companies, which are much more overvalued relative to their target market. But still it is worth considering this moment.
Concentration. According to the annual report, 80% the company buys medicines from five unnamed largest suppliers. Their logistical problems can immediately negatively affect the company's reporting.
The volume of dividends paid by the company by years in dollars
| 2017 | 0,76 |
| 2018 | 0,85 |
| 2019 | 1,06 |
| 2020 | 1,08 |
| 2021 | 1,12 |
2017
0,76
2018
0,85
2019
1,06
2020
1,08
2021
1,12
What's the bottom line?
Take shares on 29,67 $. And then we have, like a good RPG, there are several options for action:
- wait for the price 34 $. Think, that we will reach this level in the next 14 Months;
- wait for the price 40 $ is the peak of PetMed's share price during the pandemic in July 2020. Probably, then you'll have to wait 3 years - I think, during this time, another large-scale quarantine may occur, which will spur sales of the company;
- keep shares next 15 years.
The option of buying a company by someone is possible in all cases, but the longer the holding period, the higher this probability. I advise you to look in the news section on the company's website, to be aware of the situation with dividends.
