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PetMed (PETS) Optimistic About New Orders Amid Cost Woes


On Jun 11, we issued an updated research report on PetMedExpress, Inc. PETS. The stock carries a Zacks Rank #2 (Buy). The company is striving to implement several strategies to revitalize its top line. These include increased focus on advertising efficiency to boost new order sales and shifting sales to higher margin items while also expanding the product line.

After several quarters of drag in new order sales, we are impressed with PetMed’s improved performance through fiscal 2018. The entire year demonstrated a bullish momentum with new order sales growth of 8%, primarily on aggressive advertising. Although the company witnessed 5% softness in New Order sales during the fourth quarter, it is strategically increasing advertisements to handle the situation tactfully.

Further, reorder sales grew 10.3% in the year. In the final quarter, driven by a change in product mix to higher priced items and augmented doses, average order size rose to $89 from $86 a year ago.

PetMed is also working on improving its campaigns’ effectiveness. The company has been quite successful in pushing up its sales via the Internet. Approximately, 85% of the company’s orders was generated on the website during the fourth quarter compared with 83% in the year-ago period.

Of late, the company has started focusing on advertising abilities to better new order sales and shifting sales to higher margin items including generics while expanding its product offerings. PetMed offers a wide range of products for dogs, cats and horses. We believe that with progress in economic conditions, PetMed's broad product portfolio will help drive growth in the coming quarters.

However, with an aim to increase the recognition of its brand names, PetMed markets its products through national advertising campaigns. Under this procedure, the company has been incurring huge expenses related to advertising campaigns in the recent times. Hence, escalating advertising expenses exert pressure on the bottom line. Also, a tough competitive landscape is a major concern.

Stock Performance

Over the past three months, PetMed has underperformed its industry. The stock has declined 7.1% against the 6% growth of the industry.

Other Key Picks

Other top-ranked stocks in the broader medical sector include Abiomed, Inc. ABMD, Genomic Health, Inc. GHDX and Stryker Corporation SYK.

Abiomed has a long-term growth rate of 27%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Genomic Health has an expected growth rate of 187.5% and a Zacks Rank of 1.

Stryker has a projected long-term earnings growth rate of 9.8%. The stock carries a Zacks Rank #2 (Buy).

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