One of the trends of the pandemic is the increase in pet ownership. Of course, when you get a pet you need to care for them. That means food, medical care, and various miscellaneous supplies. In this story, clothing is optional. The shift to online ordering and increased pet ownership has created opportunity for investors. Here are four companies that have had recent pullbacks that are setup to buy the dip.
Pet Stock #1: Chewy Inc (NYSE: CHWY)
Chewy is a $23.97 billion market cap e-commerce company that sells pet food, supplies, medications and other pet-health products through their chewy.com retail website.
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As of August 31, 2020, there was 29.11% of the company’s float shorted with a short ratio of 5.1 days. That places this company in a category of ultra-high short interest and its short ratio indicates short covering could be fairly impactful on the share price.
On September 11, there were five different analysts that reiterated their guidance on the company. There were two outperform ratings, two equal weight ratings, and one hold. However, every analyst raised their price target for the company providing a range between $49 to $74.
While the company isn’t turning a profit and isn’t projected to do so in the next two fiscal years, the company is experiencing significant revenue growth. The company has 3-year revenue growth of 74.9% and is projected to grow their revenue by 40.7% and 22.6% in the 2021 and 2022 fiscal years, respectively.
Pet Stock #2: PetMed Express Inc (NASDAQ: PETS)
PetMed Express is a $594.99 million market cap company that does business as 1-800-PetMeds. As their name implies, the company operates a pet pharmacy that sells both prescription and nonprescription pet medications and pet health products.
The company currently pays a 3.84% forward annual dividend yield and has no debt. They have a 5-year dividend growth rate of 10.8% and a 77% payout ratio. The company has consistently paid and raised its dividend for a little over 10 years.
The fact the company is paying a dividend is a reflection of a business that is a slower growth company. It’s 3-year revenue growth rate is 5% and its 3-year EPS growth rate is 3.3%. The fact that this is a potential income investment with no debt and significantly increasing cash levels in the past four years makes this an attractive income investment.
Pet Stock #3: Covetrus Inc (NASDAQ: CVET)
Covetrus is a $2.47 billion market cap animal-health technology and services company for veterinarians. They have their own branded products but also sells equipment, laboratory products, pharmaceuticals, vaccines, surgical products and many other health-related animal products. The company originated after Henry Schein spun off their animal health company and combined with Vets First Choice.
Of all the stocks on this list, this company is the less proven fundamentally with negative margins and a 3-year revenue growth rate of 7.2%. However, the company is trading in a value territory with a price-o-book value ratio of 1.96 and a price-to-sales ratio of 0.6. The company took on a significant amount of debt in 2019 relative to their cash levels.
The share price for CVET broke out on Wednesday following an analyst upgrade from Stifel who rated the company as a buy from a hold. The firm also raised their price target to $26 from $23. The analyst is looking at the company’s prescription management business that has turned a corner with EBITDA margin in the 25% range on 37% higher same-store sales. They project that portion of their business to increase from $2 million in 2019 to $90 million in 2022.
Pet Stock #4: Zoetis Inc (NYSE: ZTS)
With a market cap of $75.12 billion, this is the largest pure-play pet stock. The company manufactures animal health medications, vaccines and diagnostic products. The company has a global footprint and has been an industry leader for over 65 years. The company has focused on expanding their diagnostic products line in recent years.
The company boasts significant margins with a 34% operating margin and a 25.5% net profit margin. They currently have a return on assets of 13.84% and a return on equity of 59.75%. They have a 3-year revenue growth rate of 9.8% and a 3-year EPS growth rate of 23.5%.
While the company has high margins and consistent growth, they also have higher debt levels with a debt-to-equity of 2.63 and a cash-to-debt ratio of 0.43. However, they have a current ratio of 3.47, which is a reflection of a company that is able to meet their obligations.