Petmed Express Inc Stock Clearly Is Way Overpriced

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PETS stock - Petmed Express Inc Stock Clearly Is Way Overpriced

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Petmed Express Inc. (NASDAQ:PETS) is a great idea wrapped in a commoditized box, and that’s just not something you want to invest in. PETS stock is doing just fine – too fine, actually – despite it being nothing more than an online pet pharmacy.

I don’t want to diss a company that’s been around for 21 years and making money, but I also don’t want to mislead investors into thinking that’s enough to build a stock around. PETS isn’t anything special.

The earnings report for PETS stock tells you why.

Revenues for the quarter ended Dec. 31 were $60 million, compared to $53 million last year, an increase of 14%. Looking at the first nine months of the year, revenues were $206 million, up 11% from $186 million. It is impressive that the increase came on a 15.5% increase in new orders and 13.4% increase in reorders.

Net income for the quarter came in at $9.1 million, and that is a very impressive increase of 89% from last year’s $4.8 million. For the nine month period, net income was $27.1 million up 66% from last year’s $16.3 million.

So here’s the problem. While net margins are terrific at 15%, we’re talking about PETS stock being driven by $35 million in TTM net income. PETS stock is only making a small amount of money. Yes, the 24x earnings price tag for PETS stock is arguably undervalued given the growth rate.

Except pet medication is really just a commodity. In the PETS stock 10-K, the company discloses:

“We compete with veterinarians for the sale of prescription and non-prescription pet medications and other health products. Many pet owners may prefer the convenience of purchasing their pet medications or other health products at the time of a veterinarian visit. In order to effectively compete with veterinarians, we must continue to educate pet owners about the service, convenience, and savings offered by our Company.”

That’s the ultimate problem for PetMed Express stock. When your pet is sick and needs meds, you are so worried that you just want to get the darn meds as soon as possible. It’s a tough game to have to tell consumers to wait a bit while the order gets shipped.

For vets that have medication right there, PetMed Express simply cannot compete.

PetMed Express says it operates in a $4.3 billion industry, of which is apparently owns a mere 5% market share.

It says its main competitive strengths in this market are that it is a “channel leader, its “1-800-PetMeds” brand name, that it is a licensed pharmacy in all 50 states and awareded Vet-VIPPS accreditation, and has exceptional customer care and support”.

So what?

PETS stock roared up from $20 in March of 2017 to $53 this week, and fell $5 after earnings were reported. I have no idea why the stock is behaving this way. I just don’t see this is a long-term value, and a 2% dividend isn’t worth the trouble.

I love small-cap companies, but not ones that deal in commodities. That’s just a recipe for sickness.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/pets-stock-way-overpriced/.

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