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A Dirt-Cheap “Sleeper” Stock at the Convergence of Two Hypergrowth Megatrends

What’s better than one megatrend?

Two megatrends.

As we’ve told you before, whenever you find a hypergrowth stock at the convergence of two world-changing megatrends, you often find yourself a big-time winner.

Just look at Shopify (NYSE:SHOP), which sits at the convergence of the digital shopping and decentralization megatrends. Over the past three years, Shopify stock has surged nearly 750%.

Or consider The Trade Desk (NASDAQ:TTD) – the programmatic ad platform that finds itself in the overlap of the digital advertising and big data megatrends. That stock is up almost 1,200% over the past three years.

Okta (NASDAQ:OKTA) is another example. The identity security pioneer sits in between the cybersecurity and work-from-home megatrends. The result? A 435% surge in the stock over the past three years.

The list goes on and on. The lesson remains the same.

Hypergrowth companies at the convergence of two megatrends produce enormous returns in the stock market.

That’s why we’re especially excited about today’s stock.

It’s a company that sits in the overlap of two emerging megatrends – the shift towards online shopping and the humanization of pets – yet which, despite this secular growth exposure, trades at a dirt-cheap valuation usually reserved for beaten-up brick-and-mortar retailers with bankruptcy risks.

This disconnect is your opportunity.

Today, we will tell you all about this small-cap, hidden gem in the e-commerce world – and show you how this “sleeper” could “wake up” and charge significantly higher over the next few years.

Too Good & Too Cheap To Ignore

One of the best places to invest right now is in the online pet shopping market.

The rationale is two-fold.

One, consumer spending on pets is surging. Young folks are increasingly pushing back marriage and having kids, and are instead getting dogs and cats – and treating those dogs and cats like “starter children.” These new pet owners would spend just about anything to keep their pets happy and healthy.

Two, these new pet owners love to shop online. They grew up alongside the internet. To them, shopping online isn’t just an option – it’s the way. So, when they’re looking for a new chew toy for Spike, chances are high that they’re going to shop for and buy that toy online.

For those reasons, we thoroughly believe in the long-term economic potential of the online pet shopping market.

The “hot play” in this space has been Chewy (NYSE:CHWY) – the so-called “Amazon of Pets” that has created an all-in-one e-commerce ecosystem for all pet products.

But Chewy – with its $35 billion market cap – is already priced for a lot of long-term success.

That’s why, in this megatrend, we think Petmed Express (NASDAQ:PETS) is very interesting.

PetMed Express is like Chewy in that the company sells pet products to pet owners via an e-commerce platform. The difference? Chewy sells pet products and supplies. PetMed Express sells pet medications.

Specifically, PetMed Express has built an online pet pharmacy that markets and sells the most popular prescription and non-prescription medications for dogs, cats, and horses directly to the pet owner.

The company has successfully carved out an attractive niche for itself in this online pet pharmacy market, through superior access (PetMed Express has a pharmacy license in all 50 states), a wide product selection (the company sells everything from flea and tick preventatives, to vitamins and nutritional supplements), and a strong customer experience (the platform’s Net Promoter Score of 83% puts PetMed Express in the top 2% of all e-commerce companies).

Thanks to these advantages, PetMed Express today controls about 28% of the RX online pet market, and should be able to leverage network effects to sustain this market-leading position for the foreseeable future.

To be sure, PetMed Express is growing much more slowly than Chewy – revenues are expected to rise just 10% this year, versus 45% growth projected at Chewy – and that’s mostly because PetMed Express is basically the “eBay” of this space, while Chewy is Amazon. That is, PetMed Express has an older-school, more-niche feel than Chewy.

But… this lack of growth is more than accounted for in PetMed Express’ valuation.

Chewy is a $35 billion giant. PetMed Express is a $670 million company.

Even further, about $100 million of the market cap is covered by cash on the balance sheet… so the enterprise value here is $570 million.

Sales this year are expected at $310 million. That gives PetMed Express stock a 1.9X EV/Sales multiple.

That’s dirt cheap. The average EV/Sales multiple across all online retailers? Nearly 5X.

In other words, with PetMed Express, you have an e-commerce leader, with healthy growth prospects, trading at an enormous discount to peers.

That’s a recipe for material share price appreciation out of PetMed Express stock, especially in the current environment wherein value stocks are outperforming growth stocks.

And, to that end, I think it’s worth your time to put PetMed Express stock on your radar today.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2021/04/a-dirt-cheap-sleeper-stock-at-the-convergence-of-two-hypergrowth-megatrends/.

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