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PETsMART (Nasdaq:PETM) is the sales leader among specialty retailers in the fast-growing segment of pet supplies. PETsMART operates 825+ stores that offer pet supplies, grooming, training, even veterinary care in some locations. This stock has run hot and cold with investors over the years, rattled by worries about a slowdown in consumer spending this year, but PETM keeps bouncing back and the stock is flirting with its 52-week high.

PETsMART is due to report quarterly results next week so investors will have a chance to get the vibe from the company going into the all-important holiday season. Expectations are favorable on the holiday prospects for certain specialty niches and this is one of them.

In PETsMART’s latest earnings report three months ago, the company delivered a disappointing EPS figure of 25 cents per share. The consensus for the quarter just ended in October is for earnings of 21 cents. Of course, the biggest quarter of the year is Q4 (as with most retailers, PETM's Fiscal Year ends in January, and that period is expected to kick in 56 cents per share in profits. On the year as a whole, earnings are seen at $1.31, up 12% from a year earlier.

The company has been running same store sales growth in the mid-single digits. Over the next five years, the average growth rate for earnings is expected to be 17.1%.

PETsMART continues to have its ups and downs from quarter to quarter, but it appears on track for delivering the overall growth story that investors have sought for so long. Occasional earnings disappointments over the years and the risks associated with aggressive store openings have led to an erratic stock performance, though. After dipping below $10 in March 2004, the stock is now flirting with $30, but it has hardly been a steady rise to this point.

As with any retailer, there are merchandising, marketing, and inventory risks that can cause operating results to fluctuate at times. If the company can consistently meet expectations of annual earnings growth in the high teens, though, this stock should have plenty of good times ahead.

PETsMART and its close rival, Petco (PETC), are battling for dominance of retail pet supply which has proven to be a strong market even through weak economic times. These retailers are riding the trend toward more health-conscious care for pets, ranging from highly specialized dog food to pet dental care products. Such items have been around for some time but pet owners are increasingly making the commitment to take better care of their animals and sticking with it.

Sales are expected to grow from $3.76 billion last year to $4.23 billion this year and $4.71 billion next. Backed by these growth projections, twelve of nineteen analysts covering this stock have a Buy or Strong Buy rating on it. This stock is prone to hot and cold streaks, however, so volatility comes with the territory.

Looking at the impressive performance by PETsMART’s stock in the past few months and the outlook for growth ahead, the big dog of the pet supplies business has some bite behind its bark. At 18 times forward earnings and one times sales, it has room for expansion of its multiple especially if it can deliver the growth that is expected and do so on a consistent basis.

Disclosure: Author has no position in PETM

Source: PETsMART - No Stopping The Flea Flicker