If you own an animal companion you know you would move heaven and earth to keep it healthy. Pet ownership of dogs and cats has almost tripled from 67 million in 1970 to 164 million in 2013 according to the Humane Society of the United States. Consumer research company Packaged Facts found Americans spend $41 billion annually on pets. That figure has doubled in the last decade.
Based on these numbers, having a pet stock is a good idea for a portfolio. Pet health stocks, like dogs or cats, come in different sizes with different characteristics. Bloomberg Business Week noted that after consumer electronics, pet care is the fastest growing retail segment.
The small-cap breed
You can screen for small caps with yield over 3.5% and find maybe a hundred or so. But when you further refine it for gross margins over 25% and no debt you are left with only a few names.
One is Petmed Express Inc (NASDAQ:PETS), a direct to consumer pet pharmacy better known as 1-800-PET-MEDS. It trades at a trailing P/E of 18.81 with a 4.00% yield. The company has raised the dividend for over five years, announcing a 13% increase on July 25. Its trailing gross margin is 33.80%.
The stock is up 74.07% over the last year. However, the stock could bite back with a short interest at 36.70% and has grown from 26.70% in the spring.
On July 22 Petmed Express Inc (NASDAQ:PETS) reported earnings that surprised the Street with sales up 7.6% yoy and an increase in order size as well as gains in reorders. The company also reported an increase of 22% to EPS at $0.24 and an acquisition of 10,000 new customers. The company has increased its television advertising to continue its new customer momentum and take share away from Wal-Mart’s nascent prescription pet medication business.
A direct competitor is MWI Veterinary Supply, Inc. (NASDAQ:MWIV), another small cap but at $1.9 billion three times the market cap of Petmed Express Inc (NASDAQ:PETS). This company sells animal health products direct to veterinarians in the US and UK and offers thousands of products to the trade. The stock is up 58.21% over the last year.
MWI Veterinary Supply, Inc. (NASDAQ:MWIV) trades at a higher trailing P/E of 30.51 with no yield but earns a five star CAPS rating. The company reported Q3 earnings on July 29, guiding higher, beating EPS expectations by $0.12 with $1.24 in EPS and reporting revenues $1 million lower than expectations but still bringing in $606.4 million.
The company is growing by acquisition, acquiring PCI Animal Health last December and mentioning on the call they are keeping cash on hand for other possible accretive purchases.
This one has a short interest of only 3.90% but its debt/equity ratio is a growing 16.44. These two companies are trading at similar price/book of 4.83 for MWI Veterinary Supply, Inc. (NASDAQ:MWIV) and 5.09 for Petmed Express Inc (NASDAQ:PETS).
One advantage Petmed Express Inc (NASDAQ:PETS) has is a lean workforce of only 206 employees while MWI Veterinary Supply, Inc. (NASDAQ:MWIV) has a workforce close to eight times larger at 1,629 with a sales force of some 331 sales reps in the field and another 176 telephone sales reps.
However, MWI Veterinary Supply, Inc. (NASDAQ:MWIV) has them beat on growth with 14.67% EPS growth expected per annum. It competes with mid cap Henry Schein which sells supplies and equipment to veterinary, dental, and medical practices.
A mid-cap breed
VCA Antech Inc (NASDAQ:WOOF) has a market cap of $2.60 billion and runs in two separate divisions, Animal Hospital and Laboratory. VCA Antech operates 609 animal hospitals and 55 veterinary diagnostics laboratories in the US and Canada.