PetSmart [NDQ:PETM] Feb. 22, 2008 close: $21.81
52-week range: $20.29 - $35.48 yield = 0.55%
PetSmart is America's largest specialty retailer of pet products [est. FY 2007 revenues - $4.7 billion]. Their superstores [19,000 - 27,000 sq. ft.] offer over 13,000 items ranging from live pets and animal foods to Pet Hotel services [boarding of cats and dogs]. They offer Vetinary services in over 600 of their 966 locations.
America loves its pets and this company is a major player in this growth industry. Over the past 10 years EPS grew from [split adjusted] $0.13 to this year's $1.51 as revenues more than doubled.
In the past, PETM shares were just 'too high' for me to buy. At today's price I'm getting tempted. Their year-end report will be released in early March. The current view is that they hit record EPS of about $1.51 in FY 2007 [ended January, 2008] versus $1.33 in FY 2006. Concerns about slowing consumer spending have tempered the expectations for the new year to just 5 - 6% growth.
Thus, PetSmart shares have pulled back from last year's high of $35.50 to just $21.81 - even lower than the lows of both 2006 and 2007. This former 'glamor' stock has a 10-year median P/E of 30 and, until recently, had almost never traded below 20x earnings since coming public in 1993. Now you can own PETM at
How cheap is that for PetSmart? The only other time it hit this valuation level was in March of 2003 when trailing earnings were $0.72 and the shares dropped momentarily to $9.90. The P/E was 13.8x then and the shares rallied to $28.80 [+ 190%] over the next 10 months. At its subsequent best buying period in September 2005, PETM was available at $21.10 when trailing EPS were $1.18 and the P/E was 17.9x. In less than 2 years the shares rose by 68%.
Who else likes this one? As of December 31, 2007:
[When the share price was over $24]
Fidelity Funds [FMR] held 8.49%
T.Rowe Price owned 5.55%
Capital World Inestors had 4.47%
Allianz Global Inv. held 4.13%
Capital Reseach & Mgt. owned 4.08%
Barclays Global Inv. held 3.55%
Franklin Resources had 3.41%
Invesco owned 3.14%
William Blair held 3.05%
Vanguard Group had 2.89%
Officers and Directors owned 3.9%
Gurus Richard Aster Jr. and Ruane Cunniff are holders as well.
Value Line is using a long-term normalized P/E of 19x for their 3- 5 year outlook. That seems reasonably conservative to me considering PetSmart has rarely traded below 20x. Even that 19 multiple on recessionary forecasts of $1.59 leads to a 12-month target price of $30.21.
That leaves room for a 39% total return including the modest yield.
A crazy dream? Nah. PetSmart shares actually exceeded that target price in each of the past four calendar years with highs of $31.40 - $36.20.
If this one gets you excited... heavy petting is permitted.
52-week range: $20.29 - $35.48 yield = 0.55%
PetSmart is America's largest specialty retailer of pet products [est. FY 2007 revenues - $4.7 billion]. Their superstores [19,000 - 27,000 sq. ft.] offer over 13,000 items ranging from live pets and animal foods to Pet Hotel services [boarding of cats and dogs]. They offer Vetinary services in over 600 of their 966 locations.
America loves its pets and this company is a major player in this growth industry. Over the past 10 years EPS grew from [split adjusted] $0.13 to this year's $1.51 as revenues more than doubled.
In the past, PETM shares were just 'too high' for me to buy. At today's price I'm getting tempted. Their year-end report will be released in early March. The current view is that they hit record EPS of about $1.51 in FY 2007 [ended January, 2008] versus $1.33 in FY 2006. Concerns about slowing consumer spending have tempered the expectations for the new year to just 5 - 6% growth.
Thus, PetSmart shares have pulled back from last year's high of $35.50 to just $21.81 - even lower than the lows of both 2006 and 2007. This former 'glamor' stock has a 10-year median P/E of 30 and, until recently, had almost never traded below 20x earnings since coming public in 1993. Now you can own PETM at
How cheap is that for PetSmart? The only other time it hit this valuation level was in March of 2003 when trailing earnings were $0.72 and the shares dropped momentarily to $9.90. The P/E was 13.8x then and the shares rallied to $28.80 [+ 190%] over the next 10 months. At its subsequent best buying period in September 2005, PETM was available at $21.10 when trailing EPS were $1.18 and the P/E was 17.9x. In less than 2 years the shares rose by 68%.
Who else likes this one? As of December 31, 2007:
[When the share price was over $24]
Fidelity Funds [FMR] held 8.49%
T.Rowe Price owned 5.55%
Capital World Inestors had 4.47%
Allianz Global Inv. held 4.13%
Capital Reseach & Mgt. owned 4.08%
Barclays Global Inv. held 3.55%
Franklin Resources had 3.41%
Invesco owned 3.14%
William Blair held 3.05%
Vanguard Group had 2.89%
Officers and Directors owned 3.9%
Gurus Richard Aster Jr. and Ruane Cunniff are holders as well.
Value Line is using a long-term normalized P/E of 19x for their 3- 5 year outlook. That seems reasonably conservative to me considering PetSmart has rarely traded below 20x. Even that 19 multiple on recessionary forecasts of $1.59 leads to a 12-month target price of $30.21.
That leaves room for a 39% total return including the modest yield.
A crazy dream? Nah. PetSmart shares actually exceeded that target price in each of the past four calendar years with highs of $31.40 - $36.20.
If this one gets you excited... heavy petting is permitted.
