What’s one thing cat people and dog owners have in common? Expensive vet bills. While pet ownership might conjure up images of adorable family Christmas cards and hilarious cat videos, a good amount of care goes into owning an animal.
That’s where VCA Inc. (WOOF) comes in. VCA is a North American animal healthcare company. It provides vet services and diagnostic testing, on top of selling medical technology products. The company’s animal hospital segment operates more than 600 hospitals in 41 states and 3 Canadian Provinces, while its clinical laboratories are nationwide.
That footprint, combined with the company’s focus and VCA’s strong fundamentals, make for one bullish investment. In fact, here are seven reasons why it pays to play with pets if you’re an investor.
The most adorable mega-trend. Picking stocks within a growing industry is key to long-term success, and the pet industry is going strong. Pet spending is estimated to have topped $60 billion in 2015 — 25% higher than its level a half-decade ago. Meanwhile, vet spending is the second largest slice of that pie at over $15 billion.
Recession-proof. The best part about that growth is that it’s consistent and should continue chugging along, even if the economy slows down. Spending didn’t dip during the Great Recession; instead, it has expanded every year since tracking began in 1994. A recent BLS paper showed that spending on dog food — which is on par with vet services in terms of pet necessities — remained constant during the downturn, even as the amount of money owners spent on their own food dropped.
Relative strength. That resilience is reflected in WOOF stock. Recently, shares of VCA have been displaying relative strength, shedding just 2% over the last year versus a 7% decline for the broader market. WOOF stock suffered during the Great Recession, but has regained those losses, and then some. Zooming out, RS has actually been chugging higher since 2011.
Record revenue. Organic growth has been driving WOOF stock’s outperformance. In the most recent quarter, VCA posted 10% sales growth, tallying a record $551.7 million in the three-month period. The company has consistently grown annual revenue for over a decade.
Fantastic fundamentals. Of course, what good are sales if they don’t trickle down to the bottom line? To that end, there’s nothing to worry about regarding WOOF stock. The company boasts an operating margin of almost 15%, while gross profit grew by 11% and diluted earnings per share more than doubled in the most recent quarter.
Increasing estimates. That bottom-line growth is slated to continue, too. Over the next half-decade, VCA is expected to expand earnings by 13% per year — more than double the broader market. Analysts are optimistic, too, as consensus estimates for 2015 and 2016 have increased in recent months.
Nearly 30% upside. It’s no wonder analysts also see plenty of room for this stock to run. The current median price target on WOOF stock is $65, which represents a substantial 27% upside from current prices. Considering the consistency of the pet industry, and the strength of VCA’s fundamentals, there’s plenty of reason to believe that price target will become a reality, despite the market’s recent uncertainty.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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