How Owning PETS Can Make You Money

Petmed Express Inc. (PETS) is a retail-mail order direct company that markets prescription/non-prescription medications and other health products for dogs, cats, and horses via catalog and internet. I know that the company doesn't sound "exciting" but exciting is not always the best investment in the stock market. Sometimes the good, old, and boring stocks can do just as well and actually do much better than most.

Whenever that same company is repurchasing $20 million worth of its common stock outstanding you can be sure that that boring old-company is nothing of the sort. Underneath the mundane name like PETS lies a powerful stock with extremely strong growth.

The EPS and sales growth of PETS has been very steady during the downtrend in the market as most people will not deny their pets the creature comforts that our pets can now have. This has led to eight straight quarters of double digit growth in EPS and sales. EPS has risen 20%, 29%, 64%, 33%, 17%, 39%, 17%, and 25% during that time. At the same time that EPS growth was happening, sales grew 16%, 18%, 19%, 11%, 16%, 16%, 16%, and 19% respectively. Sales growth is not huge any particular quarter but that is some very steady growth during this downturn in the economy based on reckless fiscal policy. Despite the pain businesses have to deal with, PETS is still expecting to grow EPS in 2010 by 8%. It is nothing fancy, but it is growth in a very difficult market environment.

Other strong fundamental numbers include 0% debt to shareholder equity, cash flow of $.86 per share compared to recent earnings of .25 per share, a return-on-equity of 33% and 32% EPS growth rate. With these amazing numbers comes the added benefit of getting this stock "on the cheap" as the P/E ratio is only 16 which is in the lower end of the five-year range of 12-40. Not only is this a great fund for growth investors, but value investors can find reason to buy this stock on pullbacks.

That kind of growth with value is the reason mutual fund ownership has increased from 62 funds to 75 funds to 107 funds to 108 funds the past four quarters. Growth in fund ownership like that is no accident. Mutual funds now own 31% of the stock. Sadly, management only owns 4% of the stock. However, PETS is no spring chicken as the stock came public in 1997. The sad thing is that I remember when it came public.

Researching the strength of these numbers on Investor's Business Daily confirms that this stock is a possible future winner. The EPS rating is 96, the RS rating is 85, group RS rating is 88, Sales, profit Margin, and ROE is an A, Acc/Dis rating is a B-, the Composite rating is a 99 (top 1% of all stocks), an Up/Down ratio of 1.0, the Timeliness rating is a B, and the Earnings Stability is a very strong 7 (1 is the best, 99 the worst on this rating). The ONLY bad ranking is the Mutual Fund Sponsorship rating, which is a lowly E. That is due to last year's bear market and should not be a weight on this stock at all.

Now that we know the fundamentals of this company, let's take a look at the technicals. PETS has just bounced off the 50 and 200 day moving average on extremely strong accumulation and a surge in TSV (middle window-blue line), moneystream (bottom yellow line), Relative Strength (bottom white line), and BOP (bottom and it went green today). Some people are saying that it is breaking out from a four-and-a-half month cup with handle (if that is a cup with handle...wow...UGLY) or a shorter term flat base. Huh? Really? That is not what I see. I see a stock clearly still forming the right side of its base and what it needs to be a safe buy is for it to pullback on low volume toward the 50 day moving average and then breakout/bounce off support or the 50 day moving average on strong volume.

Going long this stock right now I believe would be too dangerous as it is breaking out from a VERY sloppy chart pattern with a noisy base (big volume bars in the base; it should be quiet) and ugly technical indicators that were showing negative divergence until Monday. So let the stock do either one of two things. Either 1: base sideways for at least five days forming a REAL handle and then buy the breakout. Or 2: let the stock pullback in a calm fashion (if it can) and then buy it with a bounce off the 50 day moving average on strong volume.

If you can't wait to get long PETS and just have to put in a market order and go long now, make sure you cut your final loss with a close below the 16.30 level - the LOD of Monday - if the stock does not move up immediately. For those of you who are waiting for your space make sure the 50 DMA is the final line in the sand if the stock can not move higher immediately.

Disclosure: At the time of publication, Joshua did not have any position in Petmed Express Inc.

Comments

[stink726:]

Interesting company; thanks.

May 12 03:17 PM

[granger:]

I have been long for the last several years. I plan on holding what I have left for hopefully decades to come.

The RS this stock has exhibited during the last 18 months of turmoil is tremendous

(Who knows maybe someday a dividend when it done growing. Not sure, just wishful thinking on my part)

May 13 09:27 AM

[granger:]

I must give credit to my fiance and her cat. She is the one that brought this stock to my attention in the early 2000's.


On May 13 09:27 AM granger wrote:

> I have been long for the last several years. I plan on holding what
> I have left for hopefully decades to come.
>
> The RS this stock has exhibited during the last 18 months of turmoil
> is tremendous
>
> (Who knows maybe someday a dividend when it done growing. Not sure,
> just wishful thinking on my part)

May 13 09:28 AM