Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Petmed Express Inc (PETS): Why You Should Care About Pet Medications

Last week was jam packed with some big companies reporting their second-quarter earnings amid broader market highs. In addition to the market behemoths, 27% of the S&P 500 will report this week, including a number of smaller but equally important companies. On Monday, a small-cap industry leader, PetMed Express Inc (NASDAQ:PETS) reported great first-quarter earnings. The company, also known as 1-800-PetMeds, is America’s largest pet pharmacy, delivering prescription and nonprescription pet medications for dogs and cats directly to the consumer at steep discounts. Over the last few years the company has established itself as the more convenient alternative to driving to the vet to buy your animals their medications.

The announcement
Shares jumped almost immediately in the session as the market needed to digest the spectacular performance. Sales came in at $74.2 million compared to sales of $69 million during the same period last year, an increase of 7.6%. The rise in sales was due to increases in both new-order and reorder sales. The average order was approximately $77 for the quarter in comparison to $73 during the first quarter last year. The increase was due to a favorable reaction to promotions, which in recent quarters were limited due to rising costs.
Petmed Express Inc (NASDAQ:PETS)
The thesis
I have been following this company for some time now. Over the last year, the company has avoided overspending for advertising, the real driver of sales. Management was being responsible. Why overspend today when the rising costs are a temporary result of the presidential election? On the company’s previous conference call last quarter, management stated it would once again be stepping up the advertising budget when prices fall during the first quarter. As a result of the increase in advertising spending, the company generated a 9.6% increase in new-order sales in addition to a 7.1% rise in reorder sales.

Going forward, I believe the company will continue to benefit from a number of tailwinds. First is a shift to generic medications. Generics may sell for far less, but they provide much higher margins to retailers. Everyone wins. The second, an increase in the number of animals to historical levels. During the most recent economic recession, we witnessed the level of animal ownership decline. As the economy comes back to full swing, I expect to see the number of pets increase, thus generating higher revenues for the company. Higher revenues with higher margins, you can’t beat that.

The competition
The company does face competition from a few other online competitors, including, Inc. (NASDAQ:AMZN) yet the competition hasn’t been an important factor to the growth of the company. The online pet medications market is competitive with low barriers to entry, the main differentiating factor is advertising. Amazon purchased along with a basket of other specific e-commerce websites with catchy domain names during 2011 from Quidsi. I would expect to benefit from the same tailwinds, increasing pet populations and generic medications, however I don’t believe the company will take market share away from Petmed Express Inc (NASDAQ:PETS). Last quarter, PetMed Express added 207,000 new customers. It will be interesting to see if Amazon gives us greater guidance regarding this sector in the quarters ahead.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.