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, Small Cap Gems (484 clicks)
Long only, contrarian, special situations, value
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I am slightly positive on the retail sector overall, due to falling oil prices. This should provide a positive impact on consumer spending as gas prices fall. However, and with apologies to Cooper, my golden retriever, one retail stock I would be very cautious on right now is PetSmart (NASDAQ:PETM). It is a well-run company, but after increasing some 60% over the last three quarters, the stock looks like it is in overbought territory.

6 reasons to be wary of buying PETM at $66 a share:

  1. In 35 separate transactions, insiders have sold over 50% of their shares over the last six months.
  2. Although net income increased approximately 50% from FY2010 to FY2012, operating cash flow stayed basically level over the same time frame.
  3. The stock is selling at the top of its five year valuation range based on P/E, P/S, P/CF and P/B.
  4. Analysts expect both earnings and revenue growth to substantially decelerate in the next fiscal year based on their consensus estimates right now.
  5. The stock is trading right at its median price target of $68 held by the 17 analysts that cover the stock. In addition, the stock not receive any upgrades or "buy" initiations so far in 2012.
  6. After a huge move since last summer, the stock looks like it could be in the beginning stages of topping out (see chart).


(Click to enlarge)

Source: PetSmart Is Looking Pricey