Small cap Petmed Express Inc (PETS): The Best Pet Stock? PETM & WOOF

About a week ago, Wall Street was biting small cap pet stock Petmed Express Inc (NASDAQ: PETS) for not living up to its earnings expectations - meaning it might be worth taking a closer look at the stock and compare its performance with other pet stocks like mid cap PetSmart, Inc (NASDAQ: PETM) and small cap VCA Antech Inc (NASDAQ: WOOF). I should also mention that we have recently added Petmed Express to our SmallCap Network Elite Opportunity (SCN EO) portfolio because we think the stock is undervalued in the pet space and has tremendous growth potential moving forward.

What is Petmed Express Inc?

Small cap Petmed Express was founded in 1996 and is America's largest pet pharmacy, delivering prescription and non-prescription pet medications and other health products for dogs and cats at competitive prices direct to the consumer through its 1-800-PetMeds toll free number and on the Internet through its website at www.1800petmeds.com. The company is a licensed pharmacy to dispense prescription medications in all 50 states with over 3,000 SKUs, including a variety of private label products all made in the United States.

For reference, mid cap PetSmart is the largest specialty pet retailer of services and solutions operating around 1,289 stores and more than 196 in-store PetSmart PetsHotels® dog and cat boarding facilities in the United States, Canada and Puerto Rico while small cap VCA Antech is the leading provider of pet health care services in the country with a nationwide clinical laboratory system and over 600 free-standing animal hospitals in 41 US states and Canada.

What You Need to Know About Petmed Express Inc

A look at Petmed Express' investor relations website reveals a letter from the CEO dated June 14th which begins by saying:

Despite fiscal 2013 presenting several challenges - including a manufacturer's suspension of production of several key products, advertising during a presidential election year, unseasonably colder weather, and increased competition - the Company was able to increase gross margins and decrease operational expenses to improve our bottom line results.

On Monday of last week, Petmed Express reported that revenue rose 4% to $60.5 million while net income climbed 5% to $4.2 million thanks to reorders (which rose 5% to $48.9 million), higher online sales (which rose 7% to $47.9 million) and lower operating expenses (which declined from $13 million to $12.7 million mostly on lower advertising expenses). Average order size also rose slightly from $72 a year earlier to $73 but EPS came in at $0.21 when expectations were $0.22 with the rising cost of medicine apparently being to blamed.

Nevertheless, it should be remembered that Petmed Express soared by a double digit amount after it announced earnings in July when it reported a solid trend of new customer and average order growth. That could mean last quarter's slight disappointment on EPS could be just a fluke – especially when you consider how many Americans (perhaps as many as two-thirds of households) own a pet.

Otherwise and back in July, it should be mentioned that Petmed Express raised its dividend to 17 cents from 15 cents. This gives the stock a forward dividend of $0.68 and a yield of 4.60, but this is also on a rather high and probably not sustainable payout ratio of 178%.

Share Performance & Valuation: Petmed Express Inc vs. PETM & WOOF

On Monday, small cap Petmed Express fell 0.94% to $14.70 (PETS has a 52 week trading range of $10.00 to $17.75 a share) for a market cap of $296.86 million plus the stock is up 35.5% since the start of the year, up 36.7% over the past year and down 10.2% over the past five years. Here is a look at the performance of Petmed Express verses pet stocks PetSmart and VCA Antech:

As you can see from the above chart, PetSmart has been the best performer since the financial crisis followed by VCA Antech with Petmed Express trailing both.

Here is a look at the most recent technical charts for all three pet stocks:

Finally and according to Yahoo! Finance data, Petmed Express has a trailing P/E of 16.33 and a forward P/E of 15.64; PetSmart has a trailing P/E of 19.04 and a forward P/E of 16.24; and VCA Antech has a trailing P/E of 47.93 and a forward P/E of 15.98.

The Bottom Line. Again, small cap Petmed Express's recent earnings "miss" was small and it just might be worth taking a closer look at verses other pet stocks like PetSmart and VCA Antech.

SmallCap Network Elite Opportunity (SCN EO) has an open position in PETS. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.