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 (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:
- In 35 separate transactions, insiders have sold over 50% of their shares over the last six months.
- Although net income increased approximately 50% from FY2010 to FY2012, operating cash flow stayed basically level over the same time frame.
- The stock is selling at the top of its five year valuation range based on P/E, P/S, P/CF and P/B.
- Analysts expect both earnings and revenue growth to substantially decelerate in the next fiscal year based on their consensus estimates right now.
- 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.
- After a huge move since last summer, the stock looks like it could be in the beginning stages of topping out (see chart).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.