Should You Exit From This Small-Cap Pet Pharmacy Stock – PETS

Apr 05, 2022 12:00 AM PDT | Team Kalkine
Should You Exit From This Small-Cap Pet Pharmacy Stock – PETS


PetMed Express, Inc.

PetMed Express, Inc. (NASDAQ: PETS) is a leading pet pharmacy with locations across the country. Prescription and non-prescription pet pharmaceuticals, health items, and supplies for dogs, cats, and horses are sold directly to consumers by the company. It promotes its goods through national advertising campaigns to increase brand awareness, increase traffic to the company's website at, acquire new consumers, and increase repeat purchases.

Why should Investors make an Exit?

  • Fall in Topline and Bottomline: During 9MFY22 (ended December 31, 2021), PETS reported a 12.68% decline in sales to USD 207.42 million from USD 237.54 million during 9MFY21. It PETS reported a contraction in net income to USD 15.03 million during 9MFY22 from USD 23.79 million during 9MFY21.
  • Industry Lagging Gross Margins: The company reported a slight improvement in gross margins from 28.5% in Q2FY22 to 29.2% in Q3FY22 (ended December 31, 2021). However, its gross margin in Q3FY22 is significantly lower than the industry median of 46.8%.
  • Collapse in Return Metrics: In Q3FY22, the company's ROE and reinvestment rate declined to 3.0% and -1.4%, respectively, from 4.5% to 0.2% in Q2FY22. If this pattern continues, investors and other shareholders may face long-term challenges.
  • Bearish Technical Indicators: On the daily chart, PETS price is trading below the downward sloping trend line and facing the resistance of the same. Furthermore, the momentum oscillator RSI (14-period) is trading at ~45.05 level, trading in negative territory. On the daily chart, the stock price is trading below the trend-following indicator 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock is placed at USD 19.70, while the key resistance level is placed at USD 29.50.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

PETS share price has been on a bearish trend throughout the year, fallen 24.26% in the past twelve months and is currently trading at the lower band of the 52-week range of USD 21.64 to USD 46.67. We have valued the stock using the EV/Sales based relative valuation methodology and arrived at a target price of USD 22.40.

Considering the decline in topline and bottom-line numbers, industry lagging margins, collapse in return metrics, current valuation, and bearish technical indicators, we recommend a "Sell" rating on the stock at the current price of USD 25.88, up 1.37%, as of April 05, 2022, at 6:53 AM PDT.


Three-Year Technical Price Chart (as of April 05, 2022, at 6:53 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.