PetSmart (NASDAQ:PETM) is one of my favorite locations to shop at because that's where I shop for my "best friend." From my personal experience, the company offers great customer service, nice variety of products and offers many additional services such as pet grooming and pet daycare along with selling merchandise.
Let's look at company's fundamentals.
The company continues to profit from the fact that Americans will spend money on their pets even in worse times. The company's market cap is $6.01 billion which translates to $53.84 per share. While the company's trailing PE of 22 might be worrysome, its forward PE is 18. The company's profit margin was 4.64% in the last year. In a year where retailers suffered greatly from shrinking profit margins, this is not a bad number. The company had $6 billion of revenue in 2011, which translates to $53 per share, almost as much as its share price. Out of the $6 billion revenue, the company was able to keep $280 million as net income. The company has total cash of $290 million ($2.61 per share) and total debt of $564 million. Given that the company's total debt is only twice as much as its yearly net income, it's not worrysome at all.
Company's net income has been rising steadily. In 2008 the company's net income was $192 million, in 2009 this number increased to $199 million and in 2010, the number was $240 million and last year it was $280 million. In the third quarter of 2011 the company's net income grew by 32% compared to the same quarter in 2010. The sales at the same store increased by 6.6% whereas store traffic increased by 2.2% which means not only more people were visiting the same stores, but they were also spending more at each visit compared to 2010. In the last quarter the company opened 15 new stores and it wants to keep opening at least that many in every quarter going forward. The company now has 1,210 stores and 189 pet hotels.
Moving forward, the company expects it's earnings to grow by 15% in 2012. This is a growth company and it is doing the right things to keep the momentum going. As the economy gets better, people will buy more pets and they will buy more things for their pets. Also the company's Pethotel brand seems to be promising. The last time I went there, it was so booked that I had to get a reservation 2 weeks in advance in order to board my dog there. The demand is definitely high for this company's products and services. The company's main competitor Petco (PETC) may pose some threat to company's growth, but PetSmart's offering of additional services helps increase its market share.
Finally, the stock price fluctuated between $37.76 and $54.96 in the last year and current price of $53.84 is very close to its 52-week high. The stock returned 34.4% of gains in the last year in addition to 1.04% dividend yield. The company's current dividend yield might sound low but it went up from 3 cents per share in 2009 to 14 cents per share in 2011 and it will continue to rise in the near future. Besides, the company seems to be investing its money into opening new stores rather than paying a lot of dividends, which is good for the growth of the company. I believe that PetSmart is a "buy" and my price target for the company is $65 for the next year. More conservative investors might want to wait until the stock price falls below $50 to invest, but long term investors may initiate a position anytime now as the company will keep growing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.