Tuesday, November 17, 2020

A Small Cap Equity holding: PetMed Express, Inc. (PETS, $29.95): “Who Doesn’t Love Pets?” by: Maddy Aubry, AIM Student at Marquette University

PetMed Express, Inc. (PETS, $29.95): “Who Doesn’t Love Pets?”

By: Maddy Aubry, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• PetMed Express, Inc. (NASDAQ: PETS) provides prescription and non-prescription medication for pets and other health products and supplies for dogs, cats, and horses. They market their products to consumers through national television, online, and direct mail or print advertising campaigns. 

• 2020, Quarter 3 earnings showed that reorder sales increased by 9.6% for the quarter in comparison to the same quarter in 2019. 

• As of September 30, 2020, PETS has no debt. 

• The advancement of the 2020 eCommerce platform reconstruction is well under way which could result in increased sales for PETS. 

• PETS has maintained good relationships with manufacturers resulting in the ability to keep prices stable. 

Key points: PETS is dedicated to continuing to provide medications to customer’s pets throughout the pandemic. They have seen demand start to normalize with vets and brick and mortar pet retailers opening back up. One disruption the company has had due to the pandemic is delayed delivery times, but they are adjusting. PETS is also dedicated to ensuring their employees remain safe and healthy. Therefore, they have continued to work from home where possible and if not possible, they are providing enhanced disinfecting and increased social distancing.  

While the company has offered their products through an e-commerce platform for some time, they have found that this segment is only continuing to grow as more and more brick- and – mortar stores are going by the wayside. With this in mind, management announced to invest $5 million towards e-commerce capabilities. As of October 26, 2020, the company is now in the second phase of the eCommerce platform, and they are focusing on redesigning their website and mobile app. This will become greatly beneficial to the company as the pandemic continues as it has moved even more retail online. It has been mentioned that their dip in value in mid-2020 could be a result of this change towards eCommerce and their eCommerce platform still being in phase one. The company plans to have their website redesigned and the mobile app updated by the end of this year.

In the 10-Q released November 3, 2020, PETS recognizes that they were able to decrease their allowance for doubtful accounts from March 31 to September 30 by $25,000 due to their historical bad debts, as well as economic trends. PETS is recognizing that with the economy starting to recover from the pandemic, people will be more likely to make required payments again.

PETS is dedicated to paying out majority of their earnings to investors. In 2019, they paid out 73% of their earnings to investors. One way they do this is by paying dividends. In 2019 they declared a dividend of $1.06, and they have declared a slight increase in dividends of $1.08 for 2020. These dividends will be paid out on November 20th.

What has the stock done lately?

While PETS’ 3-month change is -7.48%, they are still seeing long term growth. The stock seemed to take a dip in July causing the decreasing 3-month-change but has remained steady since. Over the past month, PETS has seen a positive 1.25% change. While that does not seem like much due to their dramatic 12-month increase, they are continuing to grow despite the setback in July.

Past Year Performance: Over the last 12 months, PETS has increased value by 27.77% in comparison to the benchmark, Russel 2000, being up 9.03%. Nearly all of PETS growth has come within 2020 as their YTD increase is 27.34%. PETS was added to the AIM Small Cap portfolio in January 2020, resulting in the portfolio benefiting from nearly that entire value increase, YTD. PETS’ 52-week high was $42.88 and low was $21.20. the current price is $29.95.

Source: FactSet

My Takeaway

With COVID-19, many equities have suffered from dramatic decreases throughout 2020. The pandemic has created many uncertainties and resulted in many different short-term losses. PETS took a hit in July and has remained at the lower valuation since then, but this is just a short-term affect. I believe that their YTD growth better represents the company as a whole. YTD, the value has increased nearly 30%, and I believe they will continue to have growth. This will be in part due to the company’s ability to maintain business through the pandemic and the positive effects that their eCommerce platform update will bring. After the AIM Small Cap Fund’s quarter three performance measures were released, it was clear that PETS is one of the strongest performers in the portfolio YTD, and I believe this will continue into the future. With the price being slightly lower over these past few months, I believe this is an opportunity to buy at the lower price and see the growth over the next several years as PetMed Express bounces back and continues to grow.

Source: FactSet