PetMed Express, Inc. (PETS) in Pompano Beach, Fla., operates as a pet pharmacy in the United States. The company markets prescription and non-prescription pet medications and other health products through its internet website, mobile app, and telephone contact center. PETS had benefited largely from the pet-ownership and care trend seen during the pandemic’s peak. Pet industry sales in the United States surpassed the record-breaking $100 billion mark in 2020. Furthermore, approximately 70% of Americans surveyed in 2020 reported spending more time with their pets due to the social distancing regulations. Pet care companies enjoyed significant investor attention over the period.

However, the pandemic trade seems to be fading. PETS' shares have slumped 27.8% in price over the past year and 19.8% over the past six months to close yesterday’s trading session at $25.18. The stock hit its 52-week low of $21.64 on January 24.

In addition, the company’s sales were down significantly from their year-ago value, in the company’s last reported quarter. PetMed Chief Financial Officer Bruce Rosenbloom attributed the disappointing numbers to several factors, including pet owners visiting vets in person rather than using PET’s online services as pandemic-led restrictions have been eased out.

Here is what could shape PETS’ performance in the near term:

Bleak Financials

PETS’ sales declined 7.9% year-over-year to $60.72 million in its fiscal third quarter, ended December 2021. Its gross profit stood at $17.73 million, down 9.7% from its year-ago value. Its net income decreased 44.1% from the prior-year quarter to $4.26 million, while its EPS declined 44.7% year-over-year to $0.21. The company missed the consensus earnings estimate by 30%. Also, PETS fell short of earnings estimates in the prior three quarters. Its adjusted EBITDA came in at $7.58 million, indicating a decline of 31.3% year-over-year.

In addition, PETS’ EBITDA has declined at an 18.3% CAGR over the past three years, while its net income has declined at a 19.1% CAGR over the same period. Also, its EPS decreased at an 18.7% CAGR over the past three years.

Bearish Sentiments

Analysts expect a 2.9% year-over-year decrease in PETS’ revenues in the current quarter and 3.9% in the following quarter. Furthermore, its revenues are expected to decrease 10.1% year-over-year to $278.07 million in the current year. PET’s EPS is expected to decline 20.6% in the current quarter and 33.6% in the current year. Moreover, 24.22% of PETS’ floating shares have been sold short, indicating bearish investor sentiment.

Stable Profit Margins

PETS’ 7.83% net income margin is 22.3% higher than the 6.40% industry average. Also, its 7.76% levered FCF margin is 42.2% higher than the 5.45% industry average.

Furthermore, PETS’ 12.97% and 12.07% respective ROA and ROTC compare with the 5.79% and 7.52% industry averages.

POWR Ratings Reflect Uncertain Prospects

PETS has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Momentum. This is justified because the stock is currently trading below its 50-day moving average.

PETS has a D grade for Growth, which is consistent with the company’s bleak financial growth over the past few years.

Among the 87 stocks in the Medical - Services industry, PETS is ranked #44.

Beyond what I have stated above, one can also view PETS’ grades for Quality, Growth, Momentum, and Stability here.

View the top-rated stocks in the Medical – Services industry here.

Click here to checkout our Healthcare Sector Report for 2022

Bottom Line

PETS benefited from the heightened demand for pet care services during the COVID-19 pandemic. However, the company reported sales declines in its last reported quarter. Furthermore, analysts expect further declines in the coming quarters. Thus, we think it could be wise to wait for a better entry point in the stock, considering the bearish sentiments.

How Does PetMed Express, Inc. (PETS) Stack Up Against its Peers?

While PETS has an overall POWR Rating of C, one might want to consider taking a look at its industry peers McKesson Corporation (MCK), NextGen Healthcare, Inc. (NXGN), and Ortho Clinical Diagnostics Holdings plc (OCDX), which have an A (Strong Buy) rating.

PETS shares were unchanged in premarket trading Wednesday. Year-to-date, PETS has declined -0.32%, versus a -4.63% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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