Guest davidwoo Posted June 10, 2011 Share Posted June 10, 2011 Yesterday I started buying into a company called Petmed Express ticker symbol PETS. I run a small business myself, 100 million in sales with above average margins, and PETS balance sheet intrigued me because it reminded me of my own though 3 times the size. No debt and about 70 million in cash and investments. Mostly cash. About 260 market capitalization Market cap ex cash 190 million Sales and earnings declined for the past year. Earnings and free cash flow even after the decline in sales and earnings over 20 million. Negligible amount of dilution from stock options. Massive short interest, about 30 percent of float. Either it's a fraud, manipulative short sellers, business in continued decline, or stupid short sellers. They sell PEt medication prescription an non as well as other related products. Sell online and phone through 1800petmeds 50 cent dividend yielding over 4 percent at present stock price. Maybe later I'll get into the competitive aspect of the business and any insight that offers on the recent decline in sales and earnings in addition any insight that offers on the long term viability of the business. Do any other board members own or follow PETS? If yes, would you care to add any insight to a discussion. Seems like a sensible place to put some money. If the price declines more I would even consider putting as much as 10 percent of my portfolio into it, but surely there must be fraud here with so many shares short at present prices. DW Link to comment Share on other sites More sharing options...
tooskinneejs Posted June 10, 2011 Share Posted June 10, 2011 I've followed the stock for a few years. For many, many years, this has been a great little niche business, generating great profit margins and great returns on invested capital (with insignifcant capex requirements). The recent stock price decline is due to declining sales and margins, which are generally perceived as being due to increased competition from an increasing number of other online sellers of pet meds. I think Amazon now sells certain pet meds and this is beginning to affect PetMed Express's results. Management is smart and conservative with shareholders' money, spending it on buybacks when appropriate and cutting back on advertising spending when market rates are too high (they did this recently, which may be a reason sales are weak). In my opinion, there is no chance this company is a fraud. They've bought back $30 million of stock and paid $18 million of dividends in the last three years, they have $60 million of cash and short-term investments still on hand as of March 31, 2011, and they've done all this without any debt since 2002 (which was a $1 million mortgage loan) and no capital raising from the sale of share since before 2002. If you look at where this company has gone in the last 10 years, it is really quite amazing. The question for investors now is whether they are at a bump in the road or whether the competition is finally closing in on their once very original and unique business. If it turns out to be a bump in the road, then buying at today's price of about 10x earnings will likely prove very rewarding. Link to comment Share on other sites More sharing options...
DCG Posted June 10, 2011 Share Posted June 10, 2011 I owned this company a couple years ago and sold my shares for a decent profit. They are, or maybe I should say 'were', in a nice little niche. I'm a customer of there's and haven't had any problems. There's virtually no barrier to entry though, and it was only a matter of time until the big guys like Amazon, Walmart and Petsmart got in the game. Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted June 10, 2011 Share Posted June 10, 2011 I'm a retired veterinarian, so I have a bit of insight here. PETS is a buggy whip company of sorts. They had a great deal going where they were selling flea/tick/heartworm medications when they only other option was your vet. They did this by giving ~5% to veterinarians who would buy the product for them. This was more than 50%(and possibly as high as 70%) of their business. The patents on a couple of these medications expired(or expire soon). The Frontline type meds are now available anywhere--Costco, Walgreens, Walmart, the grocery store, Amazon, etc. There is absolutely no reason to order from PETS when you can reach out and grab what you need in your normal shopping haunts. I could see 50% of their business evaporating, taking with it any additional products that people buy when they had to order flea/tick products before. I spoke with management, and they were extremely testy about the specifics of all this. I knew what was happening. They also claimed to have a great relationship with vets. That is completely untrue. Vets hate PETS! Link to comment Share on other sites More sharing options...
eclecticvalue Posted June 10, 2011 Share Posted June 10, 2011 I was looking at this a few days ago. Misterstockwell, I think your insight definitely seals the deal. In addition, over 60% of their products are the OTC medicine. The big box stores finally understood that pet supplies/medicine is a high margin business and consumers are willing to still buy it during the recession. So there is a lot of competition coming from that end. Looking at the financials the past few quarters have been tough with revenues declining and costs rising. Also the management has been pursuing an aggressive advertising strategy by giving discounts in order to increase sales. This doesn’t sound good to me. Also a key metric “Acquisition cost per user” has increased this past year. In 2010 it was $36 and now it is $42. Overall it has been tough for petsmed and clearly they do not have much of a competitive advantage. At 12X earnings it doesn’t look like a good buy I would wait for it to trade at a lower multiple. Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted June 11, 2011 Share Posted June 11, 2011 Timely--just saw an ad for "PetArmor Plus" , a generic equivalent of Frontline Plus, "...but half the price." The ad was from WalMart/Sam's Club. Link to comment Share on other sites More sharing options...
keerthiprasad Posted June 11, 2011 Share Posted June 11, 2011 This really reminds me of what the big box stores did to GNC and other health stores retailers. They figured out what was a high margin product (protein, supplements, bars, etc) that many of their customers purchased and the speciality stores suffered greatly. Link to comment Share on other sites More sharing options...
keerthiprasad Posted June 11, 2011 Share Posted June 11, 2011 This really reminds me of what the big box stores did to GNC and other health stores retailers. They figured out what was a high margin product (protein, supplements, bars, etc) that many of their customers purchased and the speciality stores suffered greatly. Keerthiprasad Can you provide more info on the GNC bankruptcy? I did a search but couldn't find anything. I did see a GNC on yahoo finance, but that GNC is not in the health and nutritional supplement business because it's market cap is 2 billion dollars. DW Sorry did not mean to imply that GNC went through bankruptcy. The company was recently taken public again i believe. About 7 years ago I was looking at becoming a GNC franchisee (even went to their hq). At the time, Walmart and others were starting to move in on their high-margin business. The franchisee's were seeing declining revenues and earnings. I believe in the ensuing years GNC moved more to private label products and setting up a "store within other stores". The franchisee's I know had closed a few stores and the remaining stores ended up being smaller businesses. Sorry I have no specific numbers on hand, as it has been many years Link to comment Share on other sites More sharing options...
eclecticvalue Posted June 11, 2011 Share Posted June 11, 2011 It seems like the reason there is a 30% short float is that the earnings are not going to be sustainable in the long run. Link to comment Share on other sites More sharing options...
SlowAppreciation Posted August 23, 2017 Share Posted August 23, 2017 http://aureliusvalue.com/research/petmed-exploiting-americas-opioid-epidemic/ Link to comment Share on other sites More sharing options...
JayGatsby Posted August 23, 2017 Share Posted August 23, 2017 http://aureliusvalue.com/research/petmed-exploiting-americas-opioid-epidemic/ If you go to Google and try their searches it looks like a lot of this has already stopped, whether PetMeds pulled the plug on the ads or Google pulled the plug on PetMeds. Either seems likely, and possible both occurred. Edit: Company response says those are less than 1% of sales: https://www.1800petmeds.com/pressroom.jsp?id=161&adata-ipsquote-timestamp=08.23.2017 Link to comment Share on other sites More sharing options...
pau_ Posted August 23, 2017 Share Posted August 23, 2017 I just tried "pills for my back pain" in an incognito window and the ad didn't show up on the main results page, but when I clicked "More" under the ads it took me to the shopping tab where there was a PetMed tramadol ad. This is what it looked like after I clicked to expand it. Link to comment Share on other sites More sharing options...
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