Stockchase Opinions

The Panic-Proof Portfolio (Stockchase Research) Pet Valu Holdings PET-T TOP PICK Jun 27, 2024

Stockchase Research Editor: Michael O'Reilly

The retailer of pet supplies in Canada opened 11 new stores last quarter, increasing its network to 794, and is targeting a total of 40-50 new stores in 2024.  Cash reserves are growing while debt is retired.  It trades at 22x earnings and its dividend is backed by a payout ratio under 40% of cash flow.  We recommend setting a stop-loss at $21, looking to achieve $37 -- upside potential of 38%.  Yield 1.5%  

(Analysts’ price target is $37.59)
$26.450

Stock price when the opinion was issued

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HOLD
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

Pet Value reported better-than-expected adjusted earnings per share but lower-than-expected same-store sales growth. Adjusted EPS of $0.36 declined 7% year-over-year missing estimates of $0.34. Same-store sales growth came in at 6%, driven by a 4.8% increase in transaction count. Revenue increased 13% year-over-year to $256.4 million, missing estimates slightly of $257.2 million. Adjusted EBITDA rose 4%, while the street called for a 1% decline. Gross margin improved by 1.5% year-over-year to 36.1% vs consensus of 34.6%. Management left the 2023 guidance unchanged at revenue of $1.05 to $1.08 million, same-store sales growth of 7% to 10%, and new store operations of 40-50 stores. The quarter overall was a miss and the guidance came in slightly lower than consensus.
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BUY

It is a good price so he is adding more. It works on a franchise basis, has good management, and it is the only company expanding outside city centres. The only overhang is a big private equity company that owns a controlling position has been peeling off stock. However there is healthy organic growth going forward. Lots of pets were bought during the pandemic and they need food.

PAST TOP PICK
(A Top Pick Jan 31/23, Down 22%)

Is the leading pet retailer in Canada as pet adoption continues to grow. This business is recession-proof. The valuation had to come in. Organic same-store sales growth has slowed a little, but management has delivered by expanding store count in underserved markets. The PE has fallen from 30x to 15x and now is 17-20x, which is reasonable considering growth potential and cash flow.

TOP PICK

Canada's largest retailer in the space. Industry growth driven by pet adoption, and higher spending per pet. Really strong 22% EBITDA margins. Healthy free cashflow, reinvested in opening new stores and distribution centres. Consistently beats consensus. 

Same-store sales growth has slowed since pandemic moves. Stock's corrected to 19x earnings, really good buy considering earnings quality and plans for growth. Yield is 1.4%.

(Analysts’ price target is $37.35)
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Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

TOP PICK
Stockchase Research Editor: Michael O'Reilly

We reiterate PET, Canada's largest pet food distributor with over 800 locations, as a TOP PICK.  The company announced completion of its BC distribution centre, the second largest in Canada (following its own in Ontario) and plans to grow in Calgary.  We like that cash reserves are growing, while debt is retired, while trading at 23x earnings.  We recommend trailing up the stop (from $21) to $23, looking to achieve $33 -- upside potential of 28%.  Yield 1.6%

(Analysts’ price target is $32.67)
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Curated by Allan Tong since 2019.
99+ opinions with 4.15 rating.

TOP PICK

Shares are basically flat over the past year do some quarterly misses, but its PE has fallen to 22.34x, below its 24.06x, making it an attractive entry point. It pays a moderate 1.72x dividend because the company is investing in expansion, which should bolster top and bottom lines in future quarters and reinforce the company's prominence in this healthy space.

premium

This is a Panic-proof Portfolio opinion which is available only for Premium members

Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

TOP PICK
Stockchase Research Editor: Michael O'Reilly

We reiterate this Canadian based Pet store operator.  Recently reported earnings showed a 28% increase in net income.  The company has opened its Vancouver regional distribution centre, positioning well ahead of the holiday season.  We like that cash reserves are growing, while debt is retired.  We recommend trailing up the stop (from $16) to $18, looking to achieve $32 -- upside of 25%.  Yield 1.7%

(Analysts’ price target is $31.82)
DON'T BUY

Liked that pet food is heavy (harder to purchase online and ship), so thought this would provide more protection. Challenging space, especially for a long-term investor like himself.

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This is a Panic-proof Portfolio opinion which is available only for Premium members

Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

PAST TOP PICK
(A Top Pick Jan 23/25, Down 3.7%)Stockchase Research Editor: Michael O’Reilly

Our PAST TOP PICK with PET is stagnating.  To remain disciplined, we recommend trailing up the stop (from $18) to $20 at this time.