Monday, May 15, 2006

Investors Throw PETS in the Doghouse

Shares of PetMed Express (PETS) were trading sharply lower Monday afternoon after the company, America's largest pet pharmacy, reported strong quarterly results.

The tape isn't showing any conviction today, so PETS is down. Throw us a bone, people: PETS' quarter was unquestionably hot, if you ask us. If PETs had reported 2 weeks ago, when the bulls were out in full force, the stock would be up 10%. Today, the market's putting it on sale.

For 2005, PetMed Express saw a 51% increase in net income to $12.1 million on a 27% increase in net sales of $138M. The company acquired 624,000 new customers compared to 510,000 in the prior fiscal year; meanwhile, retail reorder sales increased 29% to $88.4 million, which indicates existing customer loyalty. The quarterly results from PetMed Express also reflected its status as a growth company. Its profit of $3.1M in a seasonally slow period was 30% higher than last year's levels. For the quarter, the company acquired approximately 94,000 new customers versus 80,000 new customers last year. And you have the audacity to ask why the number of funds that own this stock has more than tripled in the last 12 months?

Readers should recall how aggressively we promoted pet stocks just a month ago. We see today's selloff as a good buying opportunity to load up on a company that should continue to capitalize on the Pet Boom. Even with the stock up over 200% for the year, we're interested. Look at the valuation: at 30 x trailing 12 month EPS of .47 cents, PETS is trading at a 27% discount to its 52 week high of $20 and a 36% discount to our $22 price target. We wouldn't be surprised to see an analyst upgrade the stock tomorrow morning.

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