Opinions
The Monthly Gems by Allan Tong
Petco Health and Wellness
WOOF-Q
TOP PICK
Jul 06, 2022
$15.730
Stock price when the opinion was issued
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TOP PICK
Stockchase Research Editor: Michael O'Reilly WOOF operates over 1400 pet care centers and 137 veterinary hospitals in the US. They recently reported revenue grew over $1.4 billion-up over 18% and easily beating market expectations. Revenue is now up over 30% from pre-pandemic levels. Recurring revenue (through subscription food delivery, insurance, and care memberships) was up 60%. With strong earnings expectations again for next year, the PEG ratio is estimated under 1.0 and it is currently trading at under 2.3x book value. We would buy this with a stop loss at $18.50, looking to achieve $28 -- upside potential over 27%. Yield 0% (Analysts’ price target is $27.89)
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TOP PICK
Stockchase Research Editor: Michael O'Reilly We reiterate WOOF, operator of over 1400 pet care centers and 137 veterinary hospitals in the US, as a TOP PICK. With analysts expecting EPS growth over 40% annual for the next five years and a forward PE of under 25x, it is good value here. We also like seeing the CEO and Chairman purchasing over $1 million in stock at $21.72. We would buy this with a stop loss at $18.50, looking to achieve $28 -- upside potential over 30%. Yield 0% (Analysts’ price target is $27.33)
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PAST TOP PICK
(A Top Pick Sep 30/21, Down 13.1%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with WOOF has triggered its stop at $18.50. To remain disciplined, we recommend covering the position at this time. Combined with our previous buy recommendation, this will result in a net investment loss of 13.9%. We will look for better opportunities.
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TOP PICK
Stockchase Research Editor: Michael O'Reilly The health and wellness company focusing on pets has been in the proverbial dog house since its IPO. However now the valuation is starting to make sense. Recently released earnings beat expectations and forward guidance is in line with market expectations -- quite something in an market environment dealing with supply-chain and inflationary issues. Forward earnings project a PE at 14x, at par with peers and cash reserves are growing. It trades at only 1.5x book value. We recommend a stop loss at $11.50, looking to achieve $24 -- upside potential over 60%. Yield 0% (Analysts’ price target is $24.00)
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TOP PICK
Stockchase Research Editor: Michael O'Reilly This pet wellness company has demonstrated net sales growth for 14 consecutive quarters and is reiterated as a TOP PICK. It acts a good inflation hedge and is recession proof as many products are viewed essential by pet owners. It trades at 1.5x book value. We like that it has grown cash reserves will retiring debt. We continue to recommend a trailing stop at $11.50, looking to achieve $22.50 -- over 50% potential upside. Yield 0% (Analysts’ price target is $22.58)
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PAST TOP PICK
(A Top Pick Jun 30/22, Down 21.9%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with WOOF has triggered its stop at $11.50. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 20%, when combined with the previous buy recommendation.
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WEAK BUY
Last Thursday, they reported better than expected revenue growth and adjusted EBITDA. Trends are accelerating across all categories, including same-store sales. However, guidance was slightly below consensus in same-store sales and EBITDA margin rate. Also, the company sees the market as flat. Shares got hammered today by 11%, giving back its post-report gains. He prefers CHWY.
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However, Petco has beaten its last four earnings (the next is on August 17), earnings have risen 12% in the past year, insiders have bought more shares, and it trades at a reasonable 22.22x. In mid-June, Petco announced it will open stores to serve pets and farm animals in rural American communities, where 14% of the U.S. population lives and totalling a $7 billion addressable market. Interesting. Let's see how this plan fares.