Trending Assets
Top investors this month
Trending Assets
Top investors this month
$14.3MFollowers
Petco Health and Wellness Company (Ticker: $WOOF) - Brief Breakdown
For the full article check it out here.
Company Description and Qualitative Analysis
Petco Health and Wellness Company $WOOF, Petco for short, is a health and wellness company for pets of all kinds. Petco offers veterinary care, grooming, training, tele-health for pets, vital care, and pet health insurance services. Petco also offers various pet products such as food, toys, and other pet essentials. As of March of 2022, Petco operates 1,500 locations in the United States, Mexico, and Puerto Rico and has a network of 200 in-store veterinary hospitals. Unlike many subscription based pet companies, Petco offers products for pets of all kinds and is a one-stop shop for pet owners. Petco has one of the largest retail footprints of any pet store and is one of the most well known pet store chains. As long as people have pets, Petco will be a top player and their services will be needed. I also went into Petco during my interview with Paul Cerro, you can give it a listen here.
Quantitative Analysis
At the time of this writing (5/1/2022), $WOOF is trading at $19.26 with a 52 week range of $16.22 - $28.73 and a market cap of $5.84B. In Q4 of 2021 WOOF’s had an 18% net revenue growth with a 22% adjusted EBITDA growth. Sales growth was up 14% and 30% over the past two years showing continued growth post pandemic pet boom. Return of equity (ROE: Net Income / Total Equity *100) of WOOF is 7.5% and net margin (net income / revenue) is 2.83%. The price to earnings (price per share / earnings per share) ratio was 31.06 and the debt to equities ratio (total liabilities / total equity) is 1.87.
Bullish Thesis
Here are three points to support the bullish thesis updates:
- One Stop Shop for Pet Owners: As much as everyone loves their pets, pets need supplies and care. Petco provides everything you need in one location. Although some services can be shipped or purchased online, there will always be room for grooming and in person veterinary services and Petco’s storefronts will allow pet owners to take them there with the trusted brand name of Petco behind them. By providing anything and everything for pet owners, Petco will always have a place in the pet industry.
- Retail Footprint: Outside of PetSmart there is no other pet store that has anywhere near the retail footprint that Petco has. Although there are some aspects you can order online, such as food, toys, pet beds, crates, etc., there will ALWAYS be a spot for in person pet stores. Grooming, boarding, and other pet services will need an in-person facility with a trusted brand, and Petco provides that.
- Continued Sales Growth: Even after the pandemic pet boom, Petco is seeing continued growth. Q4 of 2021 was the 7th consecutive quarter of double-digit comparable sales growth with a 13% jump in sales growth. In addition to continued growing sales, revenue is rapidly growing up 18% and 22% adjusted EBITDA. There is somewhat of a worry with potential decreased pet spending with seemingly a looming recession, but it seems with every passing quarter the demand for Petco products keeps increasing. If this trend continues I’d look for the market to react positively to Petco.
Bearish Thesis
Here are three points to support the bearish thesis:
- Local Pet Stores: Currently, there is an increase in pet stores that provide unique and fun toys, beds, or other pet supplies that big chains like Petco may not provide. There are also local stores that specialize in certain pets like dogs which can take away from Petco’s sales. Although it has not been seen in any recent sales numbers, with the increase in stores being started the trend may change if people change their pet shopping habits. This trend has not been a threat as of yet, but it is something to monitor.
- Perception of Large Brands: Whether you like it or not, there is always a negative perception of big brands. This perception ties into the previous point where the increase of large chains could make smaller brands more desirable. The lack of speciality for a specific pet could cut out the product sales for specific pets. Although the diverse products could be a benefit for Petco, certain speciality stores can cut into the sales of dog products for example. Although the diverse products and services will allow Petco to be around through the toughest of times for pet stores, it is possible for toys, beds, food, and similar item sales could be cut down while grooming, boarding, and in person services could be maintained.
- Autoship Retailers: During the COVID-19 pandemic there was a boom in pets as well as subscription services. Companies like Chewy (which I wrote about last week) have items that Petco provides, but give a convenience factor that Petco (at least the perception) does not. You can order and subscribe to various services through Petco but that is not what Petco is known for. Chewy, BarkBox and other subscription services can cut Petco’s items sales and leave Petco to become more of an in person service provider. This trend has not yet happened or has not come to fruition just yet and now that stores and in-person shopping is back from the COVID-19 pandemic, I do not believe this is a major concern as of yet.
For the full article check it out here.
greencandleinvestments.substack.com
Petco Health and Wellness Company (Ticker: WOOF) - Brief Breakdown
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
Already have an account?