PetIQ Stock Profile
As a new puppy owner (follow @thecapitalpink on Instagram and see a picture of our new border collie mix puppy!), I am now in direct contact with an entire new industry and learning new things about pet ownership on a daily basis. The array of products and services aimed at pet owners is immense and can be difficult to navigate. Are these treats good for your dog or not? Do you need pet insurance? What is the best way to stimulate your dog? The list on goes on. I came across PetIQ recently and decided to do a profile on this company to get back into the swing of things after my summer hiatus.
According to PetIQ, the pet industry is strong and growing due to the following: rising pet ownership, pets increasingly being treated like family members, increasing pet age and disease relevance, increasing focus on health & wellness and premiumization of pet products. I am experiencing all of these with the introduction of a puppy to our household. Among other things, PetIQ aims to be a leading provider of products and services previously only available from vet clinics to the retail channel. This disruptive business model makes sense as unlike with human medication and prescriptions, there is a lack of regulation surrounding the pet industry.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary, but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own PetIQ stock and am not affiliated with them in any manner.
What is PetIQ?
PetIQ has two main business segments. It provides veterinarian pet products, both as a distributor of prescription and OTC (over the counter) medication, as well as manufacturing its own product in PetIQ facilities (combined $9.6 billion total market in 2018). PetIQ manufacturers over 200 different items such as flea & tick medication, health and wellness products, prescription drugs and pet treats. Its VetIQ business provides veterinary services ($21.3 billion total market in 2018).
The veterinarian side of PetIQ’s business is a growth area. It provides VIP pet care as well as VetIQ wellness centres which provide more traditional veterinary services. Obviously, the advantage of owning its own vet clinics is that it can prescribe its own medications and control demand for the product without relying on outside clinics to prescribe the PetIQ brand of product. PetIQ brands include: Advecta, Betsy Farms, Delightables, Tex Ranch, Mimi’s Market, PetAction, Pet Lock, Vera, VetIQ and VetWorks (available at Costco).
PetIQ recently released its Second Quarter 2018 results and they were extremely positive causing an uptick of interest in the stock. Here are some highlights:
· Net sales increased 96% from the same timeframe last year;
· Product sales increased 71% from the same timeframe last year;
· 20 VetIQ centers were rolled out in WalMarts in the US in the second quarter of 2018;
· Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization – this metric gives an overall sense of the company’s operating profitability) was up 105% over the second quarter of 2017;
· Projecting $500 Million in net sales for 2018; and
· Looking ahead to the 2019-2023 timeframe, net sales growth is projected to be 15% with EPS growth at 25%.
There is no doubt about it, PetIQ is having a spectacular year with its financials and growth into this developing market of disrupting the traditional veterinarian/prescription model. All of the drivers described above are providing PetIQ with optimal growth opportunities.
What is PetIQ stock doing?
As at September 18, 2018, the numbers from our basic stock evaluation tools are as follows (I would note that once again over the summer, it appears many of the online research providers such as Morningstar have once again cut back or are no longer providing the same amount of free research. They are all moving to a subscription model where only the basis information is provided free of charge. This presents a challenge for those of us wanting to do our homework on these stocks so stay tuned as I search for alternatives):
Share price: $42.07
One share of PetIQ would cost $42.07 USD. The price over the past 52 weeks has ranged from $17.03-43.19. So, it is trading close to the high end of that range. The stock has climbed nicely from its low of $17.03 this year.
Price to Earnings (P/E): 35.35
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. This is fairly high P/E ratio which indicates it is in the growth stock territory.
Dividend Yield: --
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Not surprisingly as it is still a rapidly growing company, PetIQ does not pay a dividend at this point.
Earnings per Share (EPS): 1.19
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Investor’s Business Daily lists the 3 year EPS growth rate of PetIQ at a huge 117%!
Revenue: $267 million (2017)
Increasing revenue is a good sign that the company is growing. PetIQ’s revenue was $206, $200 and $267 for the years 2015, 2016 and 2017.
Return on Equity (ROE): 11.40%
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. I was unable to get metrics on whether PetIQ has had increasing ROE.
Market Capitalization: $1.1 billion
Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle. PetIQ would be considered a small cap stock.
Net Profit Margin: 6.2%
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.
Free Cash Flow per Share: No data available
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. It shows the cash that the company actually holds that could be distributed out to shareholders without impacting the continued development of the company.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash. A low free cash flow per share could also mean the company is earning less profit.
Price to Sales (P/S): 2.7
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data, so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 2.6 which means PetIQ is right on the industry average.
Price to Book (P/B): 7.5
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. Morningstar states that the industry average is 1.9. So the fact PetIQ is higher than the industry average but a further look at what assets it actually has is warranted.
Price to Cash Flow (P/CF): 306.8
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average is 7.1 so PetIQ is massively inflated compared to this number. However, this metric may not be all that useful for a company like PetIQ that is not as asset intensive as a manufacturing company for example.
PetIQ appears to be shooting the lights out right now in terms of growth and expansion. The pet market continues to grow and with PetIQ’s somewhat disruptive model surrounding prescriptions, I am sure consumers will respond favourably. PetIQ is definitely one company to continue watching.