I bought PETS back in 2011 and 2012. Currently, I continue to add to my position.
The trailing price earnings ratio on this growing provider for pet medications and products is below market at 10.9.
Attached are some graphics showing the most important financial metrics (from 10K’s and 10Q’s) that support owning this growing South Florida company.
It is likely to be a very profitable investment over the next 3 to 5 years. Look at the numbers and make your own call. Wall Street is too transactional and thus trades too much to take advantage of real values that take time to unfold.
Rational
Most pet owners (myself included) look at their pets as a member of their household. Like our own medical care, we want to make sure our pets get what they need to stay healthy.
Vets charge 50 percent or more when buying directly from the vet versus on-line. When many pet owners discover the huge markup they are paying, they begin to look for alternatives on-line. That’s where PETS comes in.
Yes, you don’t have to buy the medication from the vet. You only need them to write a prescription.
Did you ever wonder why vet bills has gone up so much over the last ten years? Private Equity has identified that pet owners will pay dearly for their beloved pet. Many vets are now owned by Private Equity. I don’t want to subject myself to working for Private Equity and sure don’t want to subject my pet to the same.
Those vets have seen some of those “cream profits” being taken by non-vet providers of medicines, like PETS.
Below is a summary of the company’s trends and metrics. The information is taken from their 10K’s and 10Q’s
- PETS has a below market PE of 10.9. Recently, the price has been pushed down as new competitors have tried to enter the space. Management is nibble and reacts quickly to competitive threats unlike many lumbering big companies.
- Sales have been increasing since 2015. In 2010, PETS experienced some competitive pressures and reduced pricing to retain customers, but started to increase pricing again as some of those pressures subsided. I believe Walmart was the threat in 2010 and PETS squared up quickly with their market reality. I believe it will do likewise with the latest threat. Their track record proves it! Good management.
- Operating Income has been trending up. The latest quarter shows management taking pre-emptive moves to stave off competitive threats. While big companies are slow to adjust, PETS is nimble and able to adjust quickly against competitive pressures. Sure they have given up some gross margin, but it tells you loads about the depth of management.
- Net Income is trending up well. The most recent quarter was down to deal with competitive threats like they did in 2010.
- Share earnings are trending up. In 2018, there was a significant increase. 2019 is on track for a strong year.
- What is driving significant income growth in 2018 and 2019? Smart and significant investment in their business in 2016 and 2017!
- But….that investment was only a portion of their cash.
- Unlike many companies, they reduced their diluted share count when their stock was really down (2009 to 2012). They did the buybacks when stock prices were down and then starting putting the cash to work on capital expenditures. They were ahead of the curve. Some companies are only now announcing buybacks!
- They have NO long term debt and their return on equity was 20.5% at the lowest since 2004.
Never forget the “law of the farm”. There are no "magic bean" stocks. Everything needs time to grow and evolve. No one becomes a world class athlete overnight. No one gets their college education in a day. Nothing of any importance happens immediately. Think about it. When was the last miracle you witnessed? So plant your seeds, but don't expect them to sprout tomorrow!
