Is PetMed Express Stock Undervalued?

Is PetMed Express Stock Worth Buying: Cats and dogs have been fixtures in American culture for generations. Nearly every President has shared the White House with a four-legged companion, and iconic dogs like Lassie, Ol’ Yeller, and Toto enjoy the same kind of recognition normally reserved for the biggest names in entertainment.

In many households, pets are considered full-fledged family members. Their diets, health, and overall well-being are supervised and monitored carefully, and families make sure that their furry friends have plenty of opportunity for exercise and play.

So it’s no surprise that companies that cater to pet care have succeeded in building a multi-billion-dollar industry that continues to grow each year.

In 1998, total US pet expenditures stood at $23 billion. By 2008, that figure increased to $43.2 billion. Analysts predict that 2018 will be the biggest year yet, bringing in an estimated $72.13 billion.

Cat people and dog people aren’t the only ones spending money on pets. There is a brisk market for reptile supplies, fish supplies, bird supplies, and horse supplies – not to mention a long list of small mammals and exotic pets.

If there is a cap on demand for pet-related products, businesses that are successfully competing in this crowded market haven’t found it yet.

The Rise and Fall… and Rise of Online Pet Supply Retailers

When the subject of selling pet supplies online comes up, investors are immediately wary.

After all, who can forget the dramatic rise and fall of Pets.com. This online pioneer was the first to go all-in with web-based pet food sales, and its 2002 failure was spectacular.

Though backed by Amazon, which was just starting to expand beyond book sales, Pets.com couldn’t overcome the financial challenges presented by shipping heavy bags of pet food.

In just a few short months, stock prices went from a high of $14 per share to a shockingly low $0.22 per share.

Though this company was one of many that failed during the dot-com bust, it received more attention than its equally devastated peers, thanks to its creative marketing. Many investors still remember the wildly popular Pets.com sock-puppet spokesdog, who was featured in a pricey ad during the 2000 Superbowl.

A lot has changed since Pets.com shut down its site, and a variety of retailers are now successfully shipping pet food and other supplies all over the country.

Startups offer an assortment of boutique services, such as subscription pet treat and toy delivery, customized pet clothing, and breed-specific gear.

Some companies specialize in a specific sub-category of the pet supply market, differentiating themselves by speed, service, quality, and/or price.PetMed Express is one of those interesting investing opportunities.

PetMed Express Overview

Billed as America’s largest online pet pharmacy, PetMed Express [NASDAQ: PETS] is also one of the oldest and most well-established online pet supply companies.

It was founded in 1996, and it successfully weathered the dot-com storm that took down many of the other businesses that stepped into the online sales space at that time.

PetMed Express is a licensed pharmacy that offers the convenience of filling veterinary prescriptions online.

Thanks to volume and scale, this company can offer pet medications at a price far lower than the amount charged in vet offices.

Often, PetMed Express [NASDAQ: PETS] prices are also competitive when compared to large brick-and-mortar pet retailers like PetCo and PetSmart.

It’s bread and butter is maintenance medications like flea and tick control, monthly heartworm prevention, and similar, but the company offers a wide variety of prescription and over-the-counter medicines, treatments, and supplements for cats and dogs.

Is PetMed Express Undervalued?

PetMed Express stock [NASDAQ: PETS] had a rollercoaster last year, reaching a high of $53.24 per share in January. However, the company closed the year at just $23.83 per share after a series of disappointing quarters.

In particular, summer sales were unexpectedly low compared to the same period in previous years. Typically, warmer weather means increased sales of products for prevention of flea and tick infestation, but the boost didn’t come in 2018.

Rising competition from smaller businesses played a big role in the earnings drop. PetMed Express met the challenge by decreasing prices on many products and increasing marketing to attract new customers, which took a financial toll. However, many analysts are unwilling to count the company out quite yet.

PetMed Express has some strong pros, despite recent share price declines. For example, the 4.8 percent dividend is very attractive to dividend investors.

The return on invested capital is 36.9 percent and the free cash flow yield is 9.6 percent which points to a bright future for the company.

President and CEO Menderes Akdag indicated that he is optimistic about 2019. The company’s strategic plan includes a strong focus on growing sales and improving customer service to ensure PetMed Express holds its place as a leading provider of medical supplies for pets.

Is PetMed Express a Buy?

Based on these factors, there is good reason to believe that PetMed Express shares will regain some of their lost value over time

Investors that buy now may see substantial profits, since stock appears undervalued. In fact, at the time of this writing, the fair value analysis indicates that the stock has 30.3 percent upside. Though profits are never guaranteed, these numbers look quite promising.