+ Watch PETM
on My Watchlist
The Company is a provider of products, services and solutions for the lifetime needs of pets.
Even though PetSmart's stock soared when news that JANA Partners has gone activist on it broke, this is a bet that PETM eventually gets bought out at a premium to today's price.Jason
Good profitability, improving financial metrics, leverage not too high, substantial share buyback program
I am bullish on PETM, not because Jana Partners and Longview Asset Management are advocating a private sale, which could provide an immediate pop for shareholders, but because I believe in PetSmart's basic business model of combining merchandise, especially high end consumable food products, with services that can’t be delivered by UPS via the Web. A lot of pet products are a race to the bottom (low price and margin), including toys, bowls, beds, some treats, and probably even some medicine like Frontline. I like the strategy of differentiating by offering high end and organic food products that still have a low value to weight ratio and are a regular purchase. Combining that with boarding and day care, veterinary services, and grooming attracts repeat customers. Not only will this model be resistant to on-line disruption, but near impossible for mass merchants (discount and grocery stores) to replicate. I don’t believe that #2 Petco or other chains who “might” replicate the model have added anywhere near the same level of services, thought they do compete in the food area.On the other side of the coin, the recent management transition has been followed by slowing growth and market under performance. I think the relatively new management will get it right. They are in the process of improving their product mix to increase margins and customer appeal. They have even modified their corporate message to focus more directly on their customers, which aren’t pets, but (often fanatic) pet owners.Bottom line is that unless management gets too distracted by the current activism, I think that PetSmart has a bright future as either a public or a private company. While a private acquisition might provide value in the short term, I feel that in the long term shareholders will gain more value if PetSmart remains public.
The current valuation is an excellent opportunity for investors who believe that smaller-sized stores and expansion of PetsHotel beyond its current 200 locations can help return the company to its historical growth rates. The company still has a leadership position, a tailwind from the ongoing pet industry growth trend, and a history of market-beating returns. A weak quarter or two do not change the long-term investment thesis for the company and the recent decline in share price creates an attractive value point for shareholders looking ahead five years or more.For more information, here's an article I wrote on PETM:http://www.fool.com/investing/general/2014/07/03/petsmart-remains-a-well-priced-investment-idea.aspx
14.2 price/earnings ratio is low going back 5 years. 26.57 Return on Invested Capital (ROIC) is quite impressive, twelve trailing months. Debt/equity ratio of 0.42 is okay. Expanding industry with reliable payments from customers who think highly of their little best friends.
Outstanding financial position with a very solid F score. Industry leading profit margins and strong EBITDA growth. Fair market value of $70. A safety pick in a turbulent market.
Dividends500 tracks the 200 strongest dividends in the S&P 500. To qualify as a strong dividend, the company must meet two simple requirements:- A payout ratio below 50%- An increasing dividend from the prior yearBecause there are more than 200 dividend paying companies in the S&P 500 that meet these requirements, the qualifying companies with the largest dividend yields were chosen. Dividends500 intends to test this FactSet article, which highlights these strong dividend paying companies and their outperformance versus the S&P 500 as a whole (Page 12).http://www.factset.com/websitefiles/PDFs/dividend/dividend_12.16.13If you have questions or see something you think is inaccurate feel free to let me know.
As we are leaving the recession, consumers will be happy to spend more on luxuries such as pets. Petsmart is also getting into personalization of its services, something that is becoming more and more popular recently (think any online interactive service).*Research from http://risnews.edgl.com/retail-best-practices/PetSmart-Leverages-Analytics-for-Personalized-Experience91783
stock is beaten down recently. Good time to buy.
Solid business, no respect. I have seen complaints re profit margins, which are not great, but not out of line, maybe even better, than past unless my blurred vision lies ...
Good entry point for a company that knows how to execute.
The PE Relative Valuation of this stock (valuation based on historical PE/Market PE average) suggests it's undervalued by as much as 10% at a price of $72/share, so I thought I'd jump in today. It has solid growth & value metrics, and the price graph shows few wild swings -- just a steady upward trend over time. And no matter what the economy does, people love to pamper their pets.
PETM has an absurd 40% market share in the pet store business. PETCO has 20%. Together they DOMINATE the industry essentially as a duopoly. People aren't going to stop buying pets or pet supplies any time soon.Go look at the consistently high ROIC and ROE. PETM ranks higher than 95% of companies in those important metrics.Per share free cash flow went from $0.50 to $4.69 over the past decade, and it will continue to grow in the future.The share count is down from 150m in 2005 to 106m today.Reverse DCF shows PETM to be priced for 3% growth, which seems completely irrational to me. Estimates for the next 5 years are 14%. I'll go extra conservative an cut that estimate in half and say 7%, which would result in a fair value around $96, significantly higher than today's $72.70 price. So I'd conservatively value PETM around $96-$110, but it could be worth significantly more if those 5 year growth estimates are anywhere near correct. Today's FCF/EV yield is 6.4%, which I find very attractive for a dominant, growing business.Mouthwatering economics + dominant franchise + attractive price = very high probability of a favorable long-term result.
Good ROIC, growing cash, no debt, higher revenues, busting in shares. There is a lot to like in Petsmarthttp://financials.morningstar.com/ratios/r.html?t=PETM®ion=USA&culture=en-USThanks to tom e. for flagging this one.
Changing My Caps to Reflect my investing strategy. I start with a simple screener trying to find undervalued dividend paying stocks. Then because I want to invest in things I understand I eliminate any businesses I have not heard of or in areas I lack knowledge ( Financials, Precious Metals). After that I check the Caps Rating and it gets a thumbs up if it is rated 4 stars or higher. Very few 3 star companies will get a thumbs up but occasionally i will go out on a limb with one.
Retail specialty market leader that has spurred growth with same store sales versus expansion. Ongoing product mix diversity and entrance into new markets should continue impressive revenue and income streak.
I think as discretionary income increases once again that plenty of people will continue to pamper their pets. PetSmart has many different ways to do that.
Solid and steady. I see so many people out there with dogs and poop bags. With the economy coming back and more discretionary income it should do well.
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