Why Risk Takers May See Significant Upside in PetMed Express (PETS)

Massive returns almost always call for massive risks, which is the case that investors have with online pet pharmacy PetMed Express (PETS). Just like in baseball, shortening the swing may yield a greater probability of making contact. However, short swings don’t generate enough rotational force to go yard. For that, you need a long swing. Of course, this decision suffers a higher risk of whiffing.

Bottom line, your individual circumstances will determine how to approach PETS stock. If you have all your financial bases covered and for whatever reason carry a bucketload of pocket change burning a hole in your wallet, PetMed probably wouldn’t be the worst idea in the world. On the other hand, if you’re just a few years removed from retirement, PETS certainly does not constitute a safe investment.

PETS Stock Presents a Double-Edged Sword

Fundamentally, two narratives are at war when it comes to the pet pharmacy play. On the positive side, Americans love their pets, in some cases treating their furry family members better than their human ones.

As Barchart contributor Will Ashworth stated last year, “[a]ccording to the American Pet Products Association, Americans spent $123.6 billion on their pets in 2021, up from $103.6 billion in 2020 and $97.1 billion in 2019. Over the past four years, pet industry expenditures have grown by almost 11% a year.”

It gets even better. In 2022, the APPA reported that total U.S. pet industry expenditures hit $136.8 billion, up nearly 11% from last year. Keep in mind that 2022 represented a woeful time for consumers, who were hit with blistering inflation at first, then the stifling environment of the Federal Reserve’s aggressive interest rate hiking campaign.

Still, the main takeaway was that irrespective of the harsh environment, American pet-owning households will not abandon their four-legged friends. In fact, the data shows that Americans are pressing into the pain. Invariably, that’s a positive framework for PETS stock.

Of course, every good story features a conflict to move the narrative along. For PetMed, that conflict stems from the reality that it’s been a terrible investment. Since the beginning of this year, PETS stock gave up nearly 18% of equity value. In the trailing one-year period, shares fell more than 34%. Ouch.

To be fair, momentum has picked up for the pet medication specialist. In the trailing five sessions ended July 31, shares gained over 6%. Indeed, the optimists were looking forward to PetMed delivering the goods for its fiscal first-quarter earnings disclosure.

While the company delivered something, “good” wasn’t among the adjectives. Per the AP, PetMed posted a loss of $887,000. This translated to a loss of 4 cents per share. When adjusted for non-recurring items, earnings came out to less than a penny per share.

On the revenue front, the pet pharmacy printed revenue of $78.2 million. Unfortunately, the company missed on both the top and bottom lines, resulting in red ink for PETS stock in the afterhours session.

Options Traders Hold Out Hope for PetMed Express

Although the immediate juncture for PETS stock turned negative, traders in the derivatives market appear to remain optimistic. In Barchart’s screener for unusual stock options volume, following the close of the July 31 session, total volume for PETS reached 3,852 contracts against an open interest reading of 13,808. Further, the delta between the Monday session volume and the trailing one-month average metric came out to 664.29%.

Moving down the informational column, call volume hit 3,020 contracts against put volume of 832. This pairing yielded a put/call volume ratio of 0.28, on paper favoring the bulls. However, Barchart also points out that the put/call open interest ratio clocks in at 2.03, which features significantly bearish implications.

Not helping matters is that the Barchart Technical Opinion indicator rates PETS stock a 64% sell. In addition, the two analysts covering the enterprise are perfectly split on sentiment: one strong buy, one strong sell. For those looking for clues as to market trajectory, PETS admittedly cuts a frustrating figure.

Still, Thomas Hughes of Barchart content partner MarketBeat points out that PETS stock may have hit a bottom in late May. That assessment didn’t quite pan out. However, in the trailing month, shares did gain almost 7%. Fundamentally, the company continues to work its initiatives to drive growth and provide a return to profitability.

Obviously, the latest results imply that more patience will be required, which again is terribly frustrating. However, the commitment among American consumers to open their wallets for their pets despite rising economic pressures is impressive. Thus, gamblers might be able to win big with PETS stock. It’s just that you’ve got to prep for a bumpy ride.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.