By practically any measure, pet pharmacy specialist PetMed Express (PETS) should be an idea to run away from. Its performance gives you the clues you need. Since the start of the year, PETS stock fell more than 45%. In the trailing one-year period, it’s down almost 73%, a simply staggering figure.

Of course, the concept of contrarian trading has become incredibly popular among retail investors, especially during the meme stock mania of the COVID-19 cycle. However, PETS stock appears a falling knife. Without any discernible support line, any cessation of downside movement could end up being a bull trap.

Other indicators are practically screaming for investors to steer clear of PET stock. For example, the Barchart Technical Opinion indicator rates shares as a “100% Sell,” noting a “[w]eakening short term outlook on maintaining the current direction.” Further, the company’s market capitalization sits at under $88 million. A few more sharp declines and PETS could be a legitimate nano-cap play.

Still, not every sign is so negative. For example, while the analyst consensus for PETS stock is Hold, the assessment comes from a dichotomous view; that is, one Strong Sell and one Strong Buy. The very fact that PetMed even has a buy rating – let alone a Strong Buy – is a not-insignificant attribute.

Fundamentally, it also makes a lot of sense. Simply put, Americans love their pets. According to Mordor Intelligence, the U.S. pet care and services market size will come in at around $12.21 billion by the end of this year. By 2029, this segment could be worth $14.51 billion, which is noteworthy considering the tough consumer environment.

For those who don’t mind extreme volatility, PETS stock could be one of the more exciting high-risk, high-reward opportunities.

PETS Stock Goes Against Convention

To be sure, it’s not going to be an easy ride. Following the close of Monday’s session, PETS stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. However, the actual breakdown doesn’t seem particularly encouraging.

Total volume hit 6,099 contracts against an open interest reading of 10,934 contracts. Compared to the trailing one-month average metric, the variance with Monday’s volume came out to 1,119.8%. Conspicuously, call volume only reached 591 contracts, while put volume soared to 5,508 contracts.

On paper, this pairing yielded a put/call volume ratio of 9.32. With so many traders engaging put options, the sentiment appears bearish. Looking at Barchart’s options flow screener – which filters exclusively for big block transactions – not too many large investors participated in PETS stock. This could be an indication that Monday’s price action was driven largely by retail traders.

What was significant was that on Monday morning, PetMed named Sandra Campos as the company’s CEO and president. Campos is a longtime executive in the retail sector and previously served as the chief of Diane von Furstenberg. That seemed to have excited investors in the open market, with shares returning just under 3%.

For the trailing five sessions, PETS stock is now up about 2%. To be sure, it’s too early to call for a cessation of bearishness. A breakdown below the psychologically important $4 level could spark yet more ugliness. Still, if shares can hold onto this important line, it’s possible that PetMed stock could march higher.

One of the critical factors to watch is the high short interest of 25.18% of the float, along with the short interest ratio of 27.03 days to cover. If PETS stock starts rising higher from here, bearish traders may be forced to close out their position at unprofitable rates. Further, as one set of bears exits their positions, the dynamic may create a feedback loop, thus skyrocketing the price.

Compelling Value Proposition

Interestingly, the two analysts that are covering PETS stock anticipate that fiscal 2024 revenue will land at $283.07 million. That would be up 10.2% from last year’s print of $256.86 million. Further, in fiscal 2025, the top line could expand to $299.74 million.

Even so, PETS stock trades at only 0.33X trailing-year revenue. That seems awfully low, considering that analysts anticipate double-digit-percentage sales growth for this year. Moreover, the underlying fundamentals of American pet owners continuing to purchase products and services for their furry friends make the upside argument credible.

Of course, the loss of market value in PETS stock has been horrific. Nevertheless, if PETS can hold onto that critical $4 support line, contrarian sentiment can help send shares dramatically higher.