Pet medicine retailer could be healthy investment
Dear Mr. Berko:
I just spent nearly $550 getting my boxer dog healthy and almost $170 of that amount went for drugs. I bought these drugs online from a public company called PetMed Express, and its prices and service were terrific. I’d like to buy 150 shares if you tell me that this company has good numbers.
R.C., Crossville, Tenn.
Dear R.C.:
PetMed Express Inc. (PETS-$5.17) is a 48-state pharmacy that retails prescription and non-prescription products for dogs and cats.
PETS sells products via a full-color catalog featuring more than 300 items it sends to dog and cat owners. The company sells its products via direct mail, TV advertising and online. Its prescription medicines include antibiotics, anti-inflammatory drugs and medications for chronic diseases such as arthritis and thyroid conditions.
The cost for these medicines (amitriptyline, amoxicillin, digoxin, dexamethasone, etc.), which your physician can also prescribe for you, are extremely competitive. In fact, I have a client (a teaching physicist) whose personal physician prescribed Atarax and Urocit. He purchased these meds for himself through PETS rather than Walgreens and saved almost 70 percent. That’s a lot cheaper than calling Canada.
PETS’ non-prescription products include flea- and tick-control products, vitamins, health and nutritional products and special foods. Animal lovers who purchase these products and medicines through PETS discover that its prices are on average 25 percent to 30 percent lower than those charged by the veterinarian and impressively lower than the prices paid at the pet supply store located in the neighborhood strip mall.
Few on Wall Street know that PETS exists and this is the only publicly traded animal-drug company of which I know. Its main competitors are Drs. Foster & Smith (great catalogs), KV Vet Supply and PetCareRX, each of which is privately held. But PETS, which is home-ported in tiny Pompano Beach, Fla., is the largest pet pharmacy in the United States.
PETS delivers both prescription and non-prescription products and serves more than 1.3 million customers nationwide from one location. The company’s catalog is bright, easy and clear to read, and ordering via the toll-free number is simple as Simon. If you have just rudimentary computer skills, you will discover that the online ordering system is delightfully user-friendly.
The company’s revenues in 2000 were a lowly $10 million and it lost 28 cents a share. Revenues as well as earnings have grown impressively since then.
In 2001, revenues tripled to $32 million and PETS earned 4 cents a share. In 2002 and 2003, revenues surged to $55 million and $95 million while earnings rose to 16 cents and 25 cents a share, respectively. Management believes revenues will zoom to $135 million in 2004 and that earnings between 55 cents to 65 cents may be reported by year’s end.
PETS has only 20 million shares outstanding, zero debt and plenty of cash. This issue trades at 8 to 9 times management’s projected 2004 earnings, which I consider more than acceptable. Dog and cat ownership is growing and these animal lovers seem more concerned about their pets’ health than their own.
About a year ago, my physicist client spent $382 at the vet (plus $64 in pet medicines) to cure his dog’s digestive problem. He didn’t mind spending $446, praised the vet to doggie heaven and was happy as a kidney bean. But several months later, I learned a few new words when he had a personal $25 co-pay (instead of $15) to his urologist.
PETS is a small-cap ($114 million) company that has given shareholders a 43.2 percent return on assets and a 4.5 percent return on equity. Its profit margin is 6.2 percent and improving. Its operating margin is 9.4 percent and that’s improving, too. Revenues per share last year were $4.05 and should grow more than 50 percent this year to $6.88. The stock is trading at a low 0.75 times next year’s revenues with a low forward price-earnings ratio of 8 to 9.
I can think of no reason why you shouldn’t be comfortable owning 150 shares of PETS, which in the past 12 months traded as low as $3.30 and as high as $9.45. To the best of my knowledge, there is little (if any) institutional ownership, and all insider trading has been purchases by management.
But be prepared to hold your stock for a couple of years. PETS needs “sponsorship” from Wall Street and its cousins to move the stock price. I suspect that this sponsorship could come soon. I like this stock and I think 150 shares may be a good investment.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.