Petmed Express Inc (PETS) is for Value Investors

Are you interested in a business that has been growing its top line and bottom line consistently for the last 10 years? In addition, this business has a quite conservative capital structure, with a lot of cash on hand and no leverage. At the time of writing, the business was trading at single digit EV multiple. It is Petmed Express Inc (NASDAQ:PETS), a pet pharmacy small cap stock.

Business Snapshot

PetMed, established in 1996, is considered a leading nationwide pet pharmacy, offering a wide range of dogs and cats pharmacy products under several brands including Frontline Plus, Advantage II, Sentinel and Interceptor. The business is divided into two main segments: Non-prescription medications and Prescription medications. The majority of its revenue, 59%, was generated from the non-prescription mediations segment, while around 40% of the total revenue was generated from the prescription medications. In the past two years, there have been around 2.7 million customers who have purchased from Petmed Express Inc (NASDAQ:PETS). The company reported that it mainly focused on retail customers, with additional 645,000 and 722,000 new customers in the fiscal year 2011 and 2012, respectively.

Fast Growing but No Leverage

Investors might be attracted to the company due to its spectacular growth in its top line, bottom line and cash flow over the past 10 years. The revenue increased from $55 million in 2003 to $238 million in 2012 while the net income grew from $3 million to $17 million in the same period. PetMed hadn’t generated any free cash flow until 2005. Since then, its free cash flow has also on the rising trend, from $8 million in 2005 to $20 million in 2012. Interestingly, since 2003, the company has delivered significant high returns on invested capital that has been fluctuating in the range of 18.7% – 84.5%. Over the past 12 months, the return on invested capital was 23.34%. In order to grow fast and deliver a high return on invested capital, does PetMed utilize a lot of leverage in its operation? The answer was No. The company had a quite conservative capital structure. As of December 2012, it had $62 million in total stockholders’ equity, $30 million in cash, $15.5 million in short term investments and no debt. The short-term investments were mainly in the form of bond mutual funds.

Cheapest Valuation and Highest Dividend Yield

PetMed is trading at $13.30 per share, with the total market cap of $256.4 million. The enterprise value stays at nearly $205 million. At the current market price, PetMed is valued at only 7.5x EV/EBITDA. PetMed is the smallest company compared to its two peers including Zoetis Inc (NYSE:ZTS) and PetSmart, Inc. (NASDAQ:PETM). At the current trading price of $63.45 per share, PetSmart is worth around $6.82 billion on the market. PetSmart is valued a bit more expensive at 8.56x EV/EBITDA. Zoetis, the spinoff from Pfizer Inc. (NYSE:PFE), is considered the biggest company with $16.36 billion in total market cap. It is also the most expensive, with 16.3x EV/EBITDA. Indeed, Zoetis is the global leader in medicines and vaccines for animals, with more than 300 products in 120 countries. Among the three, Zoetis generated the highest operating margin of 20%, while the operating margins of PetMed and PetSmart were only 11.2% and 9.2%, respectively. What I personally like about PetMed is its high dividend yield at 4.5%. Zoetisis not paying investors any dividend at the moment, whereas the dividend yield of PetSmart is quite low, at 1%.

Foolish Bottom Line

With a decent operating margin, a conservative capital structure, a high dividend yield and a cheap valuation, PetMed fit well in the long-term portfolios of patient investors.

The article This Pet Pharmacy is for Value Investors originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!